SEC Chairman Anticipates ‘Pump And Dumps’ With Token Offerings
On September 28, 2017, SEC chairman Jay Clayton reportedly voiced his reservations about token offerings (also called initial coin offerings or ICOs) while speaking at an event in Washington, DC.
“It would shock me if you don’t see pump-and-dump schemes in the initial coin offering space,” said Clayton. “This is an area where I’m concerned about what’s going to happen to retail investors.”
A “pump and dump” refers to the practice of falsely hyping a stock or investment opportunity to drive up its price. As the price climbs, the person or group that promoted the venture sells off their stake. This is exactly the type of heinous scheme that was effectively used by Jordan Belfort, the self-proclaimed “Wolf of Wall Street.”
Despite his premonition, the SEC chairman conceded that there is probably a “fair amount of value” in the underlying technology, at least for bookkeeping and records management. While his remarks explicitly referenced ICOs, more immediately, the agency might be concerned by digital currency exchange-traded funds (ETFs).
On September 27, 2017, NYSE Arca exchange withdrew its application to list GBTC.PK, a bitcoin investment trust sponsored by Grayscale Investments LLC. That same day, Van Eck Associates Corp also withdrew its registration document when it learned that the agency would not review the filing until bitcoin futures contracts began trading. Previously, the SEC rejected a bitcoin ETF proposal by Cameron and Tyler Winklevoss, founders of the Gemini Exchange.
Yesterday, former SEC chairman Arthur Levitt told an audience at The Economist’s Finance Disrupted conference, “I think the tendency of the Commission has been to stay away from bitcoin.”
“They have too many other issues that they are dealing with now that they don’t want to take on something as complex from a regulatory point of view as bitcoin is,” he added. Although Levitt’s tenure ended in February 2001, he’s right that the SEC has a lot on its plate.
Most recently, the agency has been dealing with the public fallout after disclosing the 2016 hack of EDGAR, the SEC’s digital filing system. In the aftermath, the agency established a Cyber Unit, which will focus on “violations involving distributed ledger technology and initial coin offerings” among other things.