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SEC's Crypto Czar Says Exchanges That List IEOs May Face Legal Risks
Certain initial exchange offerings (IEOs) may be breaking U.S. securities laws, an SEC official said.
Certain exchanges that facilitate initial exchange offerings (IEOs) may be breaking U.S. securities laws, a top Securities and Exchange Commission official has said.
Speaking Monday at CoinDesk's Consensus 2019 conference in New York, Valerie Szczepanik, the SEC's senior advisor for digital assets and innovation, said cryptocurrency exchanges that facilitate token sales for a fee likely meet the legal definition of securities dealers if the issuer or any of the buyers are based in the U.S.
STORY CONTINUES BELOW
As such, they need to follow the registration and licensing requirements for broker-dealers, alternative trading systems (ATS) or national securities exchanges. And if they're not, they're going to be in hot water, according to Szczepanik.
“Platforms seeking to list these tokens for a listing fee or bring buyers to the table for issuers are probably engaging in broker-dealer activity," Szczepanik said during a chat with Bloomberg reporter Matthew Leising, adding:
"If they are not registered they will find themselves in trouble in the U.S., if they have a U.S. issuer or U.S. buyers, if they are operating on the U.S. market."
Szczepanik did not mention any specific exchanges. However, Binance, OKEx, Bittrex and KuCoin are among the exchanges that have facilitated IEOs, and these transactions are believed to be generating millions of dollars in fees for such platforms.
The most famous platform for IEOs is Binance's Launchpad, which in January hosted a public sale of BitTorrent tokens, raising $7.4 million for the file-sharing service owned by Tron.
Szczepanik said a previous case brought by the SEC last year against TokenLot "was instructive in this regard."
"There was a platform that was assisting to bring buyers to ICOs," she said. "In this case, there was an enforcement action, as the platform was acting as a broker-dealer and participating in the distribution with a violation of the registration provisions.”
Watch CoinDesk's IEO explainer below:
Valerie Szczepanik, right, at Consensus 2019 image via Anna Baydakova for CoinDesk.
Anna Baydakova
Anna writes about blockchain projects and regulation with a special focus on Eastern Europe and Russia. She is especially excited about stories on privacy, cybercrime, sanctions policies and censorship resistance of decentralized technologies. She graduated from the Saint Petersburg State University and the Higher School of Economics in Russia and got her Master's degree at Columbia Journalism School in New York City. She joined CoinDesk after years of writing for various Russian media, including the leading political outlet Novaya Gazeta. Anna owns BTC and an NFT of sentimental value.
Marc Hochstein
As Deputy Editor-in-Chief for Features, Opinion, Ethics and Standards, Marc oversees CoinDesk's long-form content, sets editorial policies and acts as the ombudsman for our industry-leading newsroom. He is also spearheading our nascent coverage of prediction markets and helps compile The Node, our daily email newsletter rounding up the biggest stories in crypto. From November 2022 to June 2024 Marc was the Executive Editor of Consensus, CoinDesk's flagship annual event. He joined CoinDesk in 2017 as a managing editor and has steadily added responsibilities over the years. Marc is a veteran journalist with more than 25 years' experience, including 17 years at the trade publication American Banker, the last three as editor-in-chief, where he was responsible for some of the earliest mainstream news coverage of cryptocurrency and blockchain technology. DISCLOSURE: Marc holds BTC above CoinDesk's disclosure threshold of $1,000; marginal amounts of ETH, SOL, XMR, ZEC, MATIC and EGIRL; an Urbit planet (~fodrex-malmev); two ENS domain names (MarcHochstein.eth and MarcusHNYC.eth); and NFTs from the Oekaki (pictured), Lil Skribblers, SSRWives, and Gwar collections.
