Valerie Szczepanik, the Advisor for Digital Assets and Innovations at the US Securities and Exchange Commission (SEC), has said that companies or organizations looking to raise funds via initial exchange offerings (IEO) must follow appropriate regulatory guidelines.
An IEO is a new type of crowdfunding model, which may be considered an improved version of the older initial coin offering (ICO) model. Although it’s still too early to accurately determine whether IEOs are more effective, when compared to ICOs, at raising capital for projects, the Bitfinex IEO has reportedly received $1 billion in funding within only ten days of its launch.
IEO Token Sales Must Follow Appropriate Regulatory Guidelines
Commenting on the current regulatory landscape, while attending the Consensus 2019 Conference on May 13th, 2019, Szczepanik stated that crypto or blockchain projects that are planning to list their IEO tokens must adhere to the relevant regulatory guidelines.
She also cautioned:
If they are not registered, they will find themselves in trouble in the US, if they have a US issuer or US buyers, if they are operating on the US market.
She further noted that firms that are looking to pay listing fees, in order to get their IEO tokens listed on exchanges should ensure that they complying with the relevant regulations. Szczepanik also mentioned that blockchain startups that are involved in broker-dealer type activities, such as finding buyers for issuers, must follow appropriate regulatory guidelines.
TokenLot Project Managers Ordered To Pay $417,000 In Fines
While speaking at Consensus, Szczepanik pointed out that TokenLot, a crypto broker-dealer managed by Eli L. Lewitt and Lenny Kugel, had been promoting its project as an “ICO superstore” (in September 2018). She added that TokenLot’s management had been “instructive in this regard.”
She also noted:
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 a unregistered broker-dealer and participating in the distribution in violation of the registration provisions.
Last year, the SEC had accused both Kugel and Lewitt for breaking the law - as they had reportedly failed to properly register their business in the US. Although TokenLot’s management did not formally address SEC’s allegations, they did agree to pay $471,000 in fines for violating US financial regulations.
SEC Updates Regulations For Cryptoassets
In April 2019, the SEC had released an updated crypto regulatory framework, which was created by Szczepanik and Commissioner Bill Hinman. The new guidelines were drafted, in order to assist crypto industry participants in determining whether a digital asset can be considered an investment contract. In cases where a cryptoasset offering is deemed as an investment contract, then it must be regulated as a security, the new guidelines stated.