North American securities regulators increasingly focus enforcement actions on cryptos and ICOs

Maria Nikolova

State authorities have quickly learned that the cryptocurrency market is saturated with fraud, the latest NASAA enforcement report says.

The North American Securities Administrators Association (NASAA) today released its annual enforcement report, based on data from 2017. The document shows a reversal in a recent trend as more enforcement actions were taken in 2017 against unregistered individuals or firms than registered members of the securities industry. This reversal is attributed to the increased focus on cryptocurrency fraud investigations.

Unsurprisingly, enforcement personnel started increasingly focusing their efforts on cryptocurrencies, as the price of Bitcoin sharply increased from approximately $2,364 in July 2017 to nearly $20,000 in December 2017, and the market capitalization of all cryptocurrencies skyrocketed to more than $500 billion during the same time period. State authorities quickly learned the market was saturated with fraud. NASAA members began conducting swift investigations of suspect ICOs and other investments involving cryptocurrencies, and they started pursuing those enforcement actions in order to protect the investing public from harm.

For example, on December 20, 2017, the Texas State Securities Board secured an emergency action against USI-Tech Limited. This marked the first state enforcement action against a promoter of illegal and fraudulent investments tied to cryptocurrencies. Around the same time, the Securities Division of the North Carolina Department of the Secretary of State and the Texas State Securities Board started investigating BitConnect’s offer of investments in a cryptocurrency lending program.

NASAA U.S. members also reported a growing number of investigations of unregistered individuals. For 2017, participating jurisdictions reported 515 unregistered individuals were the subjects of pending investigations. This number has climbed steadily in recent years, increasing nearly 40% between 2015 and 2017.

“In light of recent state enforcement efforts against fraudulent activity involving cryptocurrencies, it would not be surprising to see a sustained high level of investigations and actions against unregistered individuals and firms in the coming months”, NASAA warns.

Let’s note that, in 2018, the efforts to put an end to cryptocurrency fraud accelerated. One of the results of these efforts is “Operation Cryptosweep”. In an announcement published in late August, NASAA said that over 200 active investigations of Initial Coin Offerings (ICOs) and cryptocurrency-related investment products are currently underway by regulators in the United States and Canada as part of “Operation Cryptosweep.” Since its launch in May, this campaign has led to 47 enforcement actions involving ICOs or cryptocurrency-related investment products. In the end of May, the number of such actions was 35.

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