U.S. SEC Announces “Cyber Unit” to Combat Violations Involving ICOs

FILE PHOTO: The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, DC, U.S. on June 24, 2011. REUTERS/Jonathan Ernst/File Photo

The U.S. Securities and Exchange Commission (SEC) is creating a “Cyber Unit” to combat online threats and “protect retail investors” in cryptocurrency.

U.S. regulators are continuing to investigate legal violations that are involved with initial coin offerings (ICOs).

Currently, the ICO market has raised $2.3 billion in blockchain-based funding with a majority of tokens coming from the Ethereum network.

Prior statements show that the U.S. regulatory agency is seeking to prevent ICOs because they violate financial regulations and these “virtual” organizations are subject to the requirements of federal securities laws.

The SEC Cyber Unit will investigate market manipulation schemes conducted with distributed ledger technology and regulatory violations tied to ICOs. Further, the unit will probe misconduct perpetrated by cybercriminals using the dark web and other “cyber-related threats.”

According to the latest SEC announcement, the unit was created months ago to implement “risk monitoring” initiatives previously outlined by the agency’s Chairman Jay Clayton.

“Cyber-related threats and misconduct are among the greatest risks facing investors and the securities industry,” explains the Co-Director of the SEC’s Enforcement Division, Stephanie Avakian. “The Cyber Unit will enhance our ability to detect and investigate cyber threats through increasing expertise in an area of critical national importance.”

In addition, the Cyber Unit will also include a “Retail Strategy Task Force” explained the SEC’s enforcement division announcement. Task force members will have a long history of investigating retail investor fraud and will include personnel from the SEC’s National Exam Program and the Office of Investor Education and Advocacy.

“By dedicating additional resources and expertise to develop strategies addressing misconduct that victimizes retail investors, the division will better protect our most vulnerable market participants,” Steven Peikin, Co-Director of the SEC’s Enforcement Division said.

This comes as Tzero, a subsidiary of Overstock, just announced that they will be launching an ICO trading platform that is fully compliant with the regulations of the SEC, and the Financial Industry Regulatory Authority, Inc. (FINTRA), according to the company.

In October, the SEC’s investor advisory committee plans to meet with Blockchain advocates to discuss ICO implications on federal securities laws.

The meeting will be held at the SEC’s headquarters in Washington D.C. and will be open to the public.

The conference will include both speakers from other regulatory departments and the blockchain industry.

This includes the former financial tech advisor at the U.S. Commodity Futures Trading Commission (CFTC), Jeff Bandman; the president of the Depository Trust & Clearing Corporation (DTCC), Michael Bodson; the co-founder of the blockchain company Chain, Adam Ludwin; and a representative from Nasdaq.

Meanwhile, South Korea has announced a full ban on ICOs following China’s moves to outlaw the digital distribution process and then subsequently cryptocurrency exchanges.

Australian financial authority (Australian Securities and Investments Commission) also has warned of the dangers that ICOs present to investors. Similarly, the UK’s Financial Conduct Authority (FSA) echoed a warning about purchasing digital tokens, stating they are “very high-risk, speculative investments,” and that the practice is largely unregulated.

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