SEC ICO Probe Underway, But Stories Conflict on Extent of Sweep
“It was a nasty piece of business.”
That’s how one industry lawyer described a subpoena he saw in January from the Securities and Exchange Commission (SEC), part of the agency’s months-long probe into the nascent crypto fundraising mechanism, initial coin offerings (ICOs).
The roughly 25-page document, the lawyer said, was “hyper-detailed,” asking for “every bit of communication around the token launch.”
But while large financial institutions have the resources and procedures to handle such requests as a matter of course, complying would be a tall order for a startup.
The lawyer said:
“For any normal person trying to respond, it would be hellish.”
Still, there was an alternative: instead of producing reams of documents, emails and messages, the recipient of the subpoena could instead just meet with the SEC. “Just come in and talk to us” is how the lawyer, who spoke on condition of anonymity, paraphrased the invitation.
The anecdote illustrates how the agency has been trying to quickly get its arms around the explosive growth in ICOs, which according to CoinDesk’s ICO Tracker have raised nearly $8 billion cumulatively, the vast majority of that in the last year.
“This is the tool they have to understand the world,” said another industry lawyer of the agency’s practice of issuing subpoenas and requests for information (RFIs).
A spokeswoman for the SEC declined to comment. The Wall Street Journal reported on the probe earlier Wednesday, contending that it has kicked into high gear in recent weeks.
But much remains unclear about the ongoing dragnet, including the timing. Several lawyers interviewed by CoinDesk this week said the subpoenas and RFIs started last fall and estimated that there have been perhaps 80 in total.
“They are shotgunning these, we’ve been warning people about this for months now,” another attorney, who wanted to remain unnamed, told CoinDesk.
Yet, others gave even higher estimates of the volume – into the hundreds – and described a recent uptick.
According to industry sources who have seen several ICO subpoenas, the requested information typically includes lists of investors, emails, marketing materials, organizational structures, amounts raised, the location of the funds and the people involved and their locations.
Not only issuers and advisors have been contacted, several sources said, but also exchanges and even investors have received requests as well.
In a recent Senate hearing, SEC Chairman Jay Clayton indicated that the SEC was pounding the beat.
“With the support of my fellow Commissioners, I have asked the SEC’s Division of Enforcement to continue to police these markets vigorously and recommend enforcement actions against those who conduct ICOs … in violation of the federal securities laws,” he told lawmakers.
So far, there’s been a handful of actions, with notable cases including Munchee and AriseBank.
One possible interpretation is that the raft of subpoenas could just be a way to scare the industry.
In the view of Carol Van Cleef, CEO of Luminous, a decentralized technology solutions company, that’s plausible. “Is this a deterrent or enforcement?” she asked rhetorically.
But in light of Clayton’s remarks, Van Cleef said it’s likely a common thread will appear in this sweep.
“There have been occasions where [the SEC] has sent out more than one subpoena at one time …if it is not indicative of a major initiative across the space, they’re all related to the same case or they’re all interrelated,” said Van Cleef, who was previously a longtime financial-services lawyer.
According to multiple sources, many of the ICOs under the microscope have been transactions where investors received a token that does not yet have any use because the proposed blockchain network has yet to be built.
What remains to be seen is if the Simple Agreement for Future Tokens (SAFT), a bifurcated structure introduced to the market last year to satisfy regulators, will have the intended effect.
According to Van Cleef, other recent news in the crypto space could also hint at what the SEC’s sweep is all about.
For instance, after Circle’s acquisition of crypto exchange Poloniex, New York Times reporter Nathaniel Popper tweeted out a slide deck apparently showing that the SEC told Circle it would not pursue enforcement action against Poloniex if Circle moved promptly to seek the appropriate regulatory approval to operate the token exchange business.
“On the eve of major SEC action, [Poloniex] sells for $400 million … it appears to have been given a huge pass,” Van Cleef said.
And what that shows is that going forward, “for entities dealing with possible noncompliance, there’s a need for an appropriate balance in the dialogue with the SEC and other government agencies. A failure to manage that dialogue appropriately will make the hurt much more significant.”
Brady Dale and Nikhilesh De contributed reporting
SEC image via Shutterstock.
Written by CoinDesk.com
Square: Murky Crypto Accounting Rules Pose Risk
Square Inc. has identified another business risk for publicly traded companies that deal in cryptocurrencies: unclear accounting rules.
In its most recent annual filing with the U.S. Securities and Exchange Commission (SEC), the digital payments company wrote that Generally Accepted Accounting Principles (GAAP), the U.S. accounting standard for public companies, offers no specific guidance for cryptocurrencies. This makes it difficult for Square to know how to report its profits or losses from cryptocurrency transactions.
Moreover, the document suggested that auditors or regulators could disagree with how Square accounted for cryptocurrencies. The filing continued:
“The accounting can be complex and subject to challenge or scrutiny. The final conclusions on the accounting treatment for our cryptocurrency transactions could affect the presentation of our results of operations.”
In other words, if Square gets it wrong, then the company may have to restate its financials, which could hurt its stock price or operations.
Last month, the payment platform introduced bitcoin buying and selling to most states through the Cash App, allowing users to send payments in the cryptocurrency to friends and family, as previously reported.
Additionally, Square also noted other regulatory difficulties that could arise from its bitcoin buy/sell feature.
In its filing, Square said that it does not think its bitcoin service qualifies as offering securities to its customers, meaning it should not fall under state or federal securities regulations.
Similarly, the company does not see itself as a broker-dealer or investment advisor as defined by U.S. securities laws, or as a commodities dealer.
While Square believes these conclusions are accurate, “the regulation of cryptocurrency and crypto platforms is still an evolving area and it is possible that a court or a federal or state regulator could disagree with one or more of these conclusions,” the company wrote.
“If we fail to comply with regulations or prohibitions applicable to us, we could face regulatory or other enforcement actions and potential fines and other consequences,” the company went on. “Further, we might not be able to continue operating the feature, at least in current form, and to the extent that the feature is viewed by the market as a valuable asset to Square, the price of our Class A common stock could decrease.”
Square is one of several prominent financial services companies that have added discussions of crypto, blockchain or distributed ledger technology to the “risk factors” sections of their annual filings this month. Others include Bank of America, JPMorgan Chase and Goldman Sachs.
Companies often take a “kitchen sink” approach to these passages, including a variety risks that they may consider remote – but material enough to warrant investors’ attention.
Square payment image via Mybloodtypeiscoffee / Wikimedia Commons
Written by Bitcoin.com
Offshore Tax Haven Marshall Islands to Issue National Cryptocurrency
Marshall Islands Govcoin ICO
The Republic of the Marshall Islands plans to issue its own cryptocurrency as an official legal tender, to be known as the Sovereign. The local parliament voted this week to proceed with the issuing plan, Kenneth Kedi, a senator and the body’s speaker, said in a Bloomberg interview. A council still has several days to object, a step he considers unlikely.
The Sovereign is expected to be issued later this year, David Paul, minister-in-assistance to the president revealed. The Marshall Islands government will arrange an initial coin offering (ICO) and exchanges will be allowed to apply to trade the currency, he said. The move is seen as a way to bolster local budgets, he added. “This was specifically targeted for the long-term needs of the country.” A portion of the funds raised in the ICO offering will also be used to finance health care to islanders still affected by US nuclear weapons testing in the area decades ago, Paul said.
The National Crypto Trend
There have been discussions for the last few years among central bankers about issuing national cryptocurrencies, mainly as an effort to to create a ‘cashless society’ or to try and answer the attraction to bitcoin by young people, as they see it. However, this trend has gotten a lot stronger recently, apparently because of the government of Venezuela pushing its own Petro.
The actual potential value of such national cryptocurrencies is still in doubt. For citizens, these digital currencies will not offer the alluring freedom from state control of bitcoin if they are really managed by the government. And if they are not run by the state then they will offer no benefit to central bankers. As the Russian Ministry of Finance recently informed President Vladimir Putin, the creation of a centralized coin seems impossible, as cryptocurrencies are based on decentralized ledgers.
Images courtesy of Shutterstock.
Report: Crypto Miners Bought 3 Million GPUs Last Year
Rising Mining Costs to Slow Down Demand
Over three million Graphics Processing Units (GPUs) have been sold to cryptocurrency miners last year, Jon Peddie Research announced in its latest report. The total sales of video cards have reached $776 million, according to the market research firm, which does not expect prices to go down in the near future.
The study covers data from the top three producers of GPUs – AMD, Nvidia and Intel. Recently, Advanced Micro Devices acknowledged shortages of its Radeon cards because of their use in mining applications. The company plans to increase their production, as news.Bitcoin.com reported.
AMD’s main competitor, Nvidia, admitted the demand by miners had exceeded its expectations in the last quarter of 2017. In an attempt to guarantee that gamers would be able to get their share, the company asked retailers to limit the number of graphics cards that can be purchased at a time. Miners usually buy the latest GPU’s in bulk, leaving empty shelves.
Nvidia CEO Jen-Hsun Huang has said that the company is working to address supply issues. It has been reported that Nvidia may reveal a new “Turing” card dedicated for mining. GPUs are mainly utilized in mining altcoins like ethereum and monero, as bitcoin requires more powerful, specialized hardware.
The report also says that overall GPU shipments in Q4 have decreased by 1.5% from the previous quarter and 4.8% year on year, mainly due to lower sales in desktop and notebook applications. However, the indicator is still above the ten-year average of -3.40%. While the market shares of Nvidia and Intel have shrunk by 6% and 2%, respectively, AMD has seen an 8.1% increase.
GPU Prices to Go Up This Year
According to the president of the market research company, “gaming has been and will continue to be the primary driver for GPU sales, augmented by the demand from cryptocurrency miners.” Dr. Jon Peddie expects a decrease in that demand, as margins drop with increasing utilities costs, while the prices of GPU’s go up because of short supply. He also said that gamers can offset those costs by mining when not gaming, but prices will not drop in the near future.
Nvidia has also stated that GPU prices will continue to go up in 2018, according to some publications. The hardware marketplace Massdrop claims the manufacturer informed them to expect prices to continue rising through the third quarter of the year, as reported by many tech sites.
The availability of memory for the graphics units is another major factor that can influence supply and price rates. Shortages of RAM have already been reported. AMD has announced it would work with suppliers to overcome the deficit, as the two main types of memory used in its RX cards, GDDR5 and HBM2, are in short supply.