The nature of initial coin offerings (ICOs) makes it harder to catch fraudsters compared to penny-stock scams, the chairman of the Securities and Exchange Commission (SEC) told a Congressional committee today.
Jay Clayton appeared before the House Financial Services Committee during a session dedicated to the SEC. The event covered a range of topics, including a hack of the ageny’s corporate filing system, EDGAR, last year.
Yet just after the recess, Congressman Ed Perlmutter (D-CO) asked about Clayton’s position on ICOs, remarking that “it reminds me of the old days with these penny stocks.”
Clayton – who said last week that he is "concerned" about the risk of the funding use case being used to facilitate pump-and-dump frauds – echoed those comments, stating that he believes his agency is up to the task of policing token sales.
He told the committee:
The SEC chair also suggested that the prevalence of potential fraud could hamper wider adoption of the tech in capital markets. Outside of the ICO use case – through which startups or other parties can issue cryptographic tokens in an effort to fund or bootstrap a new blockchain network – market operators have looked at the tech as potential replacements for existing trading and post-settlement systems.
But according to Clayton, that work could be impaired – particularly in the absence of wider education on the risks involved with ICOs.
“It’s going to be a lot harder to get the benefits of this kind of technology, technological advancement," said Clayton.
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