Howard Marks

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Top 10 Points Made By the SEC and CFTC Congress Testimony On Cryptocurrencies

Today, Jay Clayton, Chairman of the SEC, and Christopher Giancarlo, Chairman of the CFTC, testified in front of Congress on cryptocurrencies. Here are the 10 most important takeaways from Jay Clayton’s remarks:

1. Bitcoin and Ether are not necessarily currencies. “Simply calling something a currency or a currency-based product does not mean it is not a security.”

2. Most utility tokens are securities. “Merely calling a token a ‘utility’ token or structuring it to provide some utility does not prevent the token from being a security.”

3. Therefore, most ICOs are the sale of securities. “By and large, the structure of ICOS that I have seen involve the offer and sale of securities and directly implicate the securities registration requirements.”

4. Exchanges where investors trade tokens are not, in fact, exchanges because they have not registered with the SEC. “Many trading platforms are even referred to as ‘exchanges.’ I am concerned that this appearance is deceiving. In reality, investors transacting on these trading platforms do not receive many of the market protections that they would when transacting through broker-dealers on registered exchanges or alternative trading systems.”

5. No ICOs have been registered with the SEC, and the SEC has not approved any Exchange Traded Funds or other assets related to cryptocurrencies. “If any person today says otherwise, investors should be especially wary.”

6. ICOs to date have been vulnerable to digital hacks. “10% of proceeds generated by ICOs — or almost $400M — have been lost to such attacks.”

7. Anti-money laundering and know-your-customer laws must be implemented. “Market participants should treat payments and other transactions made in cryptocurrency as if cash were being handed from one party to the other.”

8. ICO promoters, such as platforms and marketing agents, should be careful not to engage in selling unregistered securities. “Engaging in the business of selling securities generally requires a license.”

9. The market is ripe for fraud from many different actors. “Experience shows that excessive touting in thinly traded and volatile markets can be an indicator of scalping, pump and dump, and other manipulations and frauds.”

10. The new Cyber Unit in the Division of Enforcement is going to be more aggressive with enforcement actions against those who violate the law. “I have asked the SEC’s Division of Enforcement to continue to police these markets vigorously and recommend enforcement actions against those who conduct ICOs or engage in other actions relating to cryptocurrencies in violation of the federal securities laws.”

It is clear the SEC is making sure investors are protected and those who defy the securities laws brought to justice.

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