In light of the significant advances in blockchain and distributed ledger technologies and their increasing use in the raise of capital in our financial markets, the Securities and Exchange Commission has issued an official pronouncement concerning several of its recent enforcement actions in this emerging area to provide guidance to market participants.
While the SEC has stated that it encourages technological advancements that benefit the investing public, it nonetheless has made clear that this must be done so in a manner consistent with the federal securities laws.
In discussing certain of its recently filed enforcement actions, the SEC outlined three broad categories within which these cases fall: (1) initial offers of digital asset securities, (2) investment vehicles invested in digital asset securities and those individuals and entities who advise investors about these securities, and (3) secondary market trading of digital asset securities.
As to the first category — offers and sales of digital asset securities, the SEC has filed several enforcement cases. These SEC lawsuits have mainly focused on two critical issues. First, when is a digital asset a “security” such that the federal securitiechs laws would apply. Second, assuming a digital asset is deemed a security, what SEC registration requirements would be applicable?
In its recent enforcement forays, the SEC settled two cases against issuers of digital asset securities under which the issuers agreed to: (1) pay a civil penalty, (2) register the tokens as securities, (3) file periodic reports with the SEC, and (4) compensate investors for those token purchasers who choose to file a claim.
With respect to the second category — investment vehicles investing in digital asset securities, the SEC made clear that investment vehicles holding digital asset securities, as well as those persons or entities that advise investors concerning digital asset securities investing, must be sensitive to the applicability of the registration, fiduciary and regulatory obligations as required by the Investment Company Act of 1940 and the Investment Adviser Act of 1940.
Finally, concerning the third category — secondary market trading of digital asset securities, the SEC’s enforcement actions have focused on the types of activities that require registration as a national securities exchange or as a broker or dealer.
As blockchain technology continues to evolve, so too will the proverbial grey area within which many market participants in this cyber arena operate, leaving many individuals and companies vulnerable to expensive and lengthy SEC investigations and, possibly, enforcement actions.
If you have been contacted by the SEC in a matter involving digital asset securities, it is critical that you are represented by an experienced SEC defense lawyer who can provide the critical advice and counsel to protect you and your company. SEC defense lawyer David Chase, a former SEC Prosecutor, understands how the SEC investigates and prosecutes its cases. The Law Firm of David R. Chase, an SEC defense law firm located in South Florida, is headed by SEC defense lawyer, David Chase, who represents those under SEC investigations around the country. Call Mr. Chase toll-free at: 800-760-0912 for a confidential and no cost initial consultation, or at david@davidchaselaw.com.
