14 Nov 2019
The United States' securities regulator, the US SEC, has just released its annual report for the fiscal year 2019. According to the report, the regulator received over $4.3 billion from various penalties, $1.2 billion of which was used for refunding investors that lost their investments to scams and other illegitimate projects.
It is no secret that the US SEC has had its hands full with all kinds of projects, particularly when it comes to pursuing fraudulent and other illegitimate ICOs. After the ICO explosion in 2017, the regulator has had a busy couple of years, which the annual report for 2019 clearly shows.
According to the report, the SEC led 862 different enforcement actions throughout the year, with 526 of them being standalone actions. Apart from ICOs, the cases included many different categories, including accounting violations, issuer disclosure, securities offerings, insider trading, auditor misconduct, market manipulation, and more.
Of course, ICO-related cases did make a significant portion of the total cases, many of which made major headlines. In fact, some were quite high-profile, such as the Telegram case, and Kik ICO case, both of which were sued by the SEC itself. Both projects were accused of selling unregistered tokens, which violates US law, and both cases received a lot of attention from the public.
There were also countless blockchain-based firms that held token sales that managed to reach a settlement with the regulator. These settlements often resulted in multi-million dollar fines, in addition to the obligation to return the raised funds, or at least a large portion of them. Most of these cases included either unregistered token offerings or unregistered sale of securities.
Another major settlement that received a fair bit of attention happened in September of this year, when the SEC reached an agreement with a blockchain company known as Block.one. The case had ended when Block.one agreed to pay a civil penalty of $24 million. The company was sued by the regulator due to an ICO that took place in 2017/2018, and that managed to raise over $4 billion, in total.
There were also other firms that the SEC had pursued, such as 1Broker, Plexcoin, SimplyVital Health, Bitqyck, and ICO Rating, which were all either charged or have reached a settlement with the regulator.
Clearly, it has been a busy year for the SEC, and its Chairman, Jay Clayton, said multiple times that almost every ICO except for Ethereum is basically a securities offering. And, since barely any of them had followed proper securities guidelines, they are all considered guilty of illegal securities sale in the eyes of the SEC.
As a result of this crackdown on ICOs, which started in full back in early 2018, the ICO model nearly went extinct. Projects did not want to be held liable, which is why a new token sale model — STO (Security token Offering) — had emerged. Still, ICOs can still be encountered today, and most of them are either weak projects that are not attracting attention or scams that are being avoided.
In early 2019, another token sale model — IEO (Initial Exchange Offering) — started gaining traction, after Binance held a token sale for TRON's BitTorrent token. The sale sparked a wave of other IEOs on various exchanges around the world, many of which created their own token-launching platforms.
As for the security token industry, it is estimated that it raised around $1 billion through security sales so far, by using assets such as art, real estate, investment funds, equity, and more.
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