The rising popularity of Initial Coin Offerings (ICOs) — and an accompanying spate of fraud and market volatility — has prompted an overdue debate in Washington, D.C., and around the world, about the proper regulatory policies for ICOs and cryptocurrencies more generally. Some of the most common questions involve the appropriate division of authority between the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), and whether their authority should reach deep into the heart of the cryptocurrency ecosystem, the spot market. Still, others contemplate whether or not an entirely new or alternative regulatory regime is needed for cryptocurrency and token fundraisers, not only here but also in Europe and elsewhere.
This article is drawing from the Congressional testimony on cryptocurrencies, which intends to consider the current regulatory approach that regulators are using to monitor and oversee cryptocurrencies and ICOs and how to achieve further regulatory clarity in these markets.
The disclosure system embodied in US Securities laws is largely one where promoters share, among other things, material information publicly about their company, management, and securities being offered, as well as their intended use of proceeds. This information is then filed with the SEC. Most ICO disclosures, by contrast, are facilitated via currently unregulated “whitepapers” focusing largely on the existing technology or technology under development or to be financed via the offering. There is, as a result, a large gap between the disclosures required in an S-1 (and arguably Form 1-A) and that which is provided in most whitepapers.