Last month, SEC Chairman Jay Clayton issued a strong critique of "market professionals" (securities lawyers, accountants, underwriters, and dealers) in the ICO space – or at least I thought so, until I read Clayton's January 22 remarks to the Securities Regulation Institute.
If there was any doubt about his December statement, Chairman Clayton erased them stating: "My first message is simple and a bit stern. Market professionals, especially gatekeepers, need to act responsibly and hold themselves to high standards. To be blunt, from what I have seen recently, particularly in the initial coin offering (\"ICO\") space, they can do better."
The Chairman zeroed in on the role of attorneys in this market and highlighted two areas where he felt they were falling short.
"There are ICOs where lawyers appear to be assisting issuers on structuring offerings "that have many of the key features of a securities offering, but call it an 'ICO,' which sounds pretty close to an 'IPO.'" At the same time, these lawyers claim they are not securities and the tokens are issued without securities law compliance.
"In other ICOs "lawyers appear to provide the 'it depends' equivocal advice, rather than counseling their clients that the product they are promoting likely is a security. Their clients then proceed with the ICO without complying with the securities laws because those clients are willing to take the risk."
In case you had any doubt where the Chairman was going with this, he added: "With respect to these two scenarios, I have instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar."
The article I wrote on Clayton's December statement was entitled "If it Walks Like a Duck and Squawks like a Duck, It's a Security." While this statement is blunter, the message is the same. The Chairman and by extension, the SEC, has a low tolerance for clever connect the dots solutions that have the net effect of defeating the investor protection goals of the securities laws.