The SEC’s Guiding Hand by@howardmarks

The SEC’s Guiding Hand

Read on Terminal Reader
react to story with heart
react to story with light
react to story with boat
react to story with money
Howard Marks HackerNoon profile picture

Howard Marks

Today the SEC spoke at a town hall called Investing In America in Atlanta, Georgia. While the event was not crypto-specific, cryptocurrencies and ICOs loomed in the background. Indeed, blockchain and ICOs came up in one of the first questions at the Q & A at the end of the panel.

In regards to ICOs


Blockchain as architecture

In response to an inaudible question, one in which we can posit that the audience member asked about the SEC’s views on ICOs and the emerging crypto space, SEC Chairman Jay Clayton said, “I think we can all agree on [the promise of blockchain]. At the fore of my mind is that blockchain greatly reduces transactions costs, including costs of verification.”

He goes on to describe how blockchain was adopted for the act of fundraising, but that “much of what I have seen in the ICO space is a securities offering.” Clayton then goes on to describe the three core elements of the majority of these ICOs:

  1. Raising money for a project
  2. Where an investor gives the project money
  3. And receives some type of right or asset that reflects the project’s returns.

That is a securities offering to the SEC’s eyes (this is basically in line with the components of the Howey Test). “I don’t know how much more clear I can be about it,” said Clayton. “We’ve built a 19 trillion dollar economy, an economy that’s the envy of the world, following those rules. I expect people to follow them.”

The name of the game


The SEC encourages investors to take their research online to Edgar and

The main takeaway from the panel was “do your research” as the SEC outlined what investors need to look for in order to protect themselves from bad actors and bad investments. Commissioner Robert Jackson Jr.’s first piece of advice to investors was, “if you’re investing in a company, the question you should be asking is how do you make money? What is your business?” Chairman Clayton’s remarks revolved around outlining four questions investors need to ask when choosing a financial professional:

  1. Is the professional registered with the SEC or with the state? If no, there are still good opportunities out there, but they are much harder to find and it is much, much easier to be taken advantage of.
  2. What type of investment professional are you working with? A broker dealer or investment advisor? They each get paid differently and offer different services. Identify what you need and go from there.
  3. Do they have bad history? Sure, people can change, bad actors can turn the corner and become good people, but as a rule of thumb, identify a financial professional’s history before working with them. If they have a questionable past, there are other professionals out there with similar skill sets and price points. We do live in a competitive market after all.
  4. How much of the money you are investing is going into the actual investment, and how much is going to the professional? This is information you should have before engaging in any deal.

The panel also warned of high pressure sales tactics. Clayton said, “I’ve been doing this a long time, and I’ve never seen a great investment where time was running out.” This is a not-so-subtle jab at any ICO that has used a public countdown on their website to indicate the end of a specific portion of a sale.

The repeating message was one of help. The SEC wants to support and help investors, not limit them or unduly punish companies. In the words of Jackson, “investing has the ability to change individual lives, to take a family from one place and one plan to another one or to help achieve a new career or a new goal…the reason we’re here is because we want to tell you about the tools that are available to help you do that.”

The future is happening now


The future of trading is digital, maybe even decentralized

Commissioner Kara Stein took on the topic of technology, specifically how fintech is changing financial markets. The SEC itself went from handling paper filings to letting companies file their own documents electronically on Edgar. Stein discussed how the increase of data is changing the way people approach technology.

“Data and technology are presenting us with tremendous opportunities for benefits, and they’re also opening the door to some new and exceedingly complicated risk,” Stein said, noting that pump and dump schemes and ponzi schemes have become increasingly common as the investing process has become easier.

Stein notes that even the SEC has things to learn; no adaptation to new technology is perfect or occurs immediately. “We’re challenged, we’re disrupted just like everybody else is, in how to embrace the innovation and make sure that it’s used effectively.” She continues,

“We all want to foster innovation, but it can’t come at the cost of lax investor protection or loss of market integrity. Our markets are built not just for investors but for the companies that are trying to access capital. Those basics aren’t going to change, and the market is naturally evolving to accommodate new products and new ways of communicating, but at the end of the day, we have to ensure that the markets are reliable, they’re trustworthy, they’re fair, and they’re competitive.”

The SEC isn’t trying to end the party and the cash flowing into blockchain companies. It wants to regulate the marketplace, remove bad actors, protect investors, and help the market grow, companies and investors flourish. They’ve been doing this work for 80 years and are quite good at it. Crypto or otherwise, the SEC is here to give a helping hand and guide industries into financial maturity.

If you like what you’ve read, please clap and give me a follow! Thanks for reading.

react to story with heart
react to story with light
react to story with boat
react to story with money
. . . comments & more!