SEC 'Looking Closely' at Public Company Blockchain Pivots, Says Chairman

The SEC is investigating companies that have made recent waves in markets with their public pivots toward blockchain.

AccessTimeIconJan 22, 2018 at 9:40 p.m. UTC
Updated Sep 13, 2021 at 7:24 a.m. UTC

The head of the U.S. Securities and Exchange Commission said today that the securities market regulator is "looking closely" at the trend of public companies that have announced new focuses on blockchain.

As previously reported by CoinDesk, a number of firms in recent months have made waves by announcing that they are shifting to blockchain business ventures, including a firm previously dedicated the sale of iced tea. And while those announcements have often sparked price increases, the trend itself has sparked warnings from both the agency as well as groups like FINRA as one potentially ripe for abuse by would-be fraudsters.

In statements issued earlier today during an event in Washington, D.C., SEC chairman Jay Clayton said that the agency is looking into the issue, honing in on the subject of investor disclosures specifically.

"The SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering," Clayton remarked.

He also said:

"I doubt anyone in this audience thinks it would be acceptable for a public company with no meaningful track record in pursuing the commercialization of distributed ledger or blockchain technology to (1) start to dabble in blockchain activities, (2) change its name to something like "Blockchain-R-Us," and (3) immediately offer securities, without providing adequate disclosure to Main Street investors about those changes and the risks involved."

Earlier this month, for example, the SEC moved to halt trading of UBI Blockchain, a public firm that saw its price soar in the past year thanks to its crypto-oriented branding. Data from MarketWatch suggests that the stock remains frozen.

Taking lawyers to task

Elsewhere in his speech, Clayton also took aim at some of the lawyers providing advice to would-be ICO organizers.

"First, and most disturbing to me, there are ICOs where the lawyers involved appear to be, on the one hand, assisting promoters in structuring offerings of products that have many of the key features of a securities offering, but call it an "ICO," which sounds pretty close to an 'IPO,'" said Clayton.

Nearly as problematic, according to Clayton, are lawyers that "appear to provide the 'it depends' equivocal advice" regarding the blockchain use case, regardless of whether the associated token bears similarities to a security under U.S. law.

"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," he concluded.

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