SEC Warns Exchanges Listing IEOs of Regulatory Troubles
It has become known that crypto exchanges that facilitate initial exchange offerings (IEOs) and offer the listing of IEO tokens for a fee could face regulatory troubles.
Such information has been disclosed by Valerie Szczepanik, the SEC’s senior advisor for digital assets and innovation, in the frameworks of CoinDesk’s Consensus 2019 conference organized in New York.
Szczepanik who is also known as the commission’s “crypto czar” noted that cryptocurrency exchanges that facilitate token sales for a fee can be viewed as securities dealers from the legal point of view if the issuer or some of the buyers are based or registered in the U.S.
Given this fact, it is necessary for them to meet the registration and licensing requirements for broker-dealers, national securities exchanges or alternative trading systems (ATS). And in case they don’t do it, they break the law and may find themselves in a quite unpleasant situation.
Speaking about the activities with IEO tokens, Szczepanik explained:
“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. 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.”
At the same time, it’s worth mentioning that Szczepanik did not mention any names of specific exchanges. Nevertheless, it’s a widely known fact that such exchanges as Binance, OKEx, Bittrex and KuCoin are included in this group of the exchanges that have facilitated IEOs. And it is supposed that the platforms have managed to receive millions of dollars in fees for these transactions.
Let us also remind you that Binance’s Launchpad is probably one of the most widely discussed platforms for IEOs is Binance’s Launchpad. This year in January it made headlines having hosted a public sale of BitTorrent tokens. As a result, it managed to raise $7.4 million for the file-sharing service that is owned by Tron.
Szczepanik also mentioned the case of TokenLot platform lead by Lenny Kugel and Eli L. Lewitt. They proclaimed themselves to be an “ICO [initial coin offering] superstore” and actually performed the role of a crypto broker-dealer distributing the assets.
“This was a platform that was assisting to bring buyers to ICOs […] In that case, there was an enforcement action charging the platform with acting as an unregistered broker-dealer and participating in the distribution in violation of the registration provisions,” explained Szczepanik.
As a result, the amount of the fine that the SEC charged the company and its owners with was $471,000.
To help the market participants better understand whether this or that asset should be viewed as a security, the SEC published detailed guidelines. It is expected that with the help of the guidelines token issuers as well as ICO operators will have an opportunity to define themselves whether their offering is compliant with federal securities laws.