REPORT: SEC ICO CRACKDOWN: Expect Heavy Handed ICO Regulations To Follow Updated Guidance

William Hinman, Director of Corporate Finance for the Securities and Exchange Commission (SEC), announced at the D.C. Fintech Week conference yesterday that the SEC will issue additional guidance for Initial Coin Offerings (“ICO”).1

Any new guidance is welcome, as the current SEC ICO Guide provides minimal assistance to ICO market participants, advisors, and investors. The ICO guide, which is largely designed to protect investors, provides only basic information on ICO registration, and the various tokens.2

The issuance of new guidance will also ensure market participants that existing security laws and rules and court precedent will continue to be used to regulate ICOs. This makes a good deal of sense, as the SEC does not want to stifle innovation, and having to amend guidelines takes less time than the SEC would need to amend existing rules or Congress to amend securities legislation.

Current SEC Guidance is Limited, So Market Participants Closely Parse Public Statements, Congressional Testimony and Enforcement Reports

In the absence of comprehensive ICO guidelines, market participants can only determine the SEC’s intentions by closely parsing reports and statements issued by the SEC, reviewing congressional testimony and SEC enforcement reports, and assessing public statements given by high-ranking SEC staff members at Fintech conferences.

For example, it was in a July 2017 report on the investigation into DAO (Decentralized Autonomous Organization) that the SEC notably declared that ICO tokens may be securities and subject to federal securities laws.3

In a December 2017 SEC public statement, SEC Chairman Jay Clayton provides a full account of his views on ICO markets and cryptocurrencies. In the statement, Clayton cautions investors who are considering taking part in ICOs. Clayton also encourages market participants and their advisors to consider laws, regulations, and guidance when advising clients, designing products and engaging in transactions.4

ICO market participants must also closely follow testimony provided by high-ranking SEC members at Congressional hearings. In February 2018, Clayton provided testimony on ICOs to the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission. In the testimony, Clayton divulged that every ICO token the SEC has seen so far was considered a security. Clayton also testified that if a crypto-asset issued by a company increases in value over time depending on the performance of the company, it is considered a security.5

With limited guidance provided by the SEC, the annual SEC enforcement report is an invaluable source of information, especially in light of the fact that the SEC is pursuing ICO cases “that deliver broad messages” and have significant “market impact”. The enforcement report is the only source that provides market participants with insight into SEC ICO enforcement actions involving unregistered broker-dealer activity, and fraudulent activity targeting retail investors.6

Hinman’s declaration at a Fintech conference that the SEC would issue additional ICO guidance is just the latest example of information that is not available on the SEC ICO Guide website but was provided by a high-ranking SEC staff member at a public conference.7,8

Formal, Comprehensive Guidance from the SEC is Long Overdue

The issuance of comprehensive guidelines by the SEC would remove the uncertainty surrounding the treatment of ICOs and eliminate obstacles that many consider are hindering innovation in the U.S. and driving business overseas.

The proposed guidance provides an opportunity for the SEC to clarify which ICOs fall under securities laws. The SEC also has the opportunity to explicitly define the various types of tokens, and clarify ICO registration procedures.

In addition, the guidance could address secondary market transactions, as part of an effort to give market participants an understanding of on how the SEC might look at tokens post-initial offering.

The SEC could take this opportunity to provide ICO market participants with relevant information that is only available in official reports and statements, congressional testimony, and enforcement reports. All of this material should be provided in an easily readable format on the SEC ICO Guide website.

The information provided in this report is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney, financial advisor, or other professional to determine what may be best for your individual needs.


This report was prepared by Trifin Roule.

For nearly two decades, Mr. Roule provided for the U.S. government legal analysis of anti-money laundering, counterproliferation financing and counterterrorist financing laws and regulations dozens of jurisdictions, and international standards, as detailed through intergovernmental bodies (e.g. Financial Action Task Force (FATF)), and financial institutions (e.g. banks’ financial intelligence units and compliance offices).

In addition, Mr. Roule has provided in-depth analysis of digital asset accounting, auditing, customer due diligence, exchange, licensing, mining, initial coin offering (ICO), private key storage, and record-keeping practices and regulations.

Mr. Roule is a former Assistant Editor at the Journal of Money Laundering Control, a peer-reviewed journal that provides detailed analysis and insight on the latest issues in the law, regulation and control of money laundering and related matters. Mr. Roule has published dozens of articles on anti-money laundering, and counterterrorist financing laws and regulations.

Trifin Roule is the Publisher of our new division, Abacus Legal, and his and his team’s reports will be free to read for the next 45 days. After that time they will be dubbed premium content and require a subscription.


  1. “SEC Official Says ‘Plain English’ Guidance On ICOs Is Coming,” Coin Desk, 5 November 2018, https://www.coindesk.com/sec-official-says-plain-english-guidance-on-icos-is-coming/ (accessed 6 November 2018).
  2. “Initial Coin Offerings (ICOs),” U.S. Securities and Exchange Commission, https://www.sec.gov/ICO (accessed 6 November 2018).
  3. “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO,” U.S. Securities and Exchange Commission, Release No. 81207, 25 July 2017, https://www.sec.gov/litigation/investreport/34-81207.pdf (accessed 6 November 2018).
  4. “Statement by Chairman Jay Clayton on Cryptocurrencies and Initial Coin Offerings, U.S. Securities and Exchange Commission, 11 December 2017, https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11 (accessed 6 November 2018).
  5. “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission,” U.S. Senate Committee on Housing, Banking and Urban Affairs, 6 February 2018, https://www.banking.senate.gov/hearings/virtual-currencies-the-oversight-role-of-the-us-securities-and-exchange-commission-and-the-us-commodity-futures-trading-commission (accessed 6 November 2018).
  6. Annual Report: Division of Enforcement,” U.S. Securities and Exchange Commission, 2 November 2018, https://www.sec.gov/files/enforcement-annual-report-2018.pdf (accessed 6 November 2018).
  7. “SEC Official Says ‘Plain English’ Guidance On ICOs Is Coming,” Coin Desk, 5 November 2018, https://www.coindesk.com/sec-official-says-plain-english-guidance-on-icos-is-coming/ (accessed 6 November 2018).
  8. “Initial Coin Offerings (ICOs),” U.S. Securities and Exchange Commission, https://www.sec.gov/ICO (accessed 6 November 2018).