On Monday, Chairman of the US Securities and Exchange Commission (SEC) Jay Clayton said in opening remarks at a meeting hosted by the Securities Regulation Institute in Washington, DC that companies can "do better" than attempt to ride the cryptocurrency train without the expertise to back such moves.
In the last few years, the Blockchain -- distributed ledger technologies which underpin cryptocurrency trading, smart contracts, and supply chain solutions -- has gained the interest and investment not only of technology vendors that can see the potential value of this technology but also of companies worldwide with less pure intentions.
While the price of Bitcoin has surged in recent months and traders have invested in everything from cryptocurrency to lending exchanges, the industry remains fraught with risk.
Initial Coin Offerings (ICOs), also known as token sale events, have proved lucrative for some and shattering for others.
Threat actors have targeted these events to line their own pockets, some ICOs have been nothing but scams lurking under the facade of respectable exchanges, and millions of dollars' worth of cryptocurrency has been lost or stolen in the last year alone.
According to Clayton, lawyers are failing to do their job and provide the right legal advice for companies launching these events.
ICOs may have points in common with securities and lawyers may help structure the events, but on the other hand, the same legal professionals are also claiming they are not securities.
"The promoters [then] proceed without compliance with the securities laws, which deprives investors of the substantive and procedural investor protection requirements of our securities laws," the regulator said.
ICOs are now on the agency's watch list, with Clayton now "instruct[ing] 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 US securities bar."
These events are only one of the challenges SEC faces, however. In the same way that some firms are jumping on ICOs as a way to make a quick profit, others are changing their identities to raise share prices.
Claton has noticed a trend in the industry with businesses appending 'Blockchain' to their names in order to appear to have a stake in the technology and appeal to interested consumers and investors.
The regulator noted that while many would not think it is acceptable for public companies to change their names to something Blockchain-related and offer securities without both a track record and providing disclosure, this is happening now -- which could lead to misrepresentation and duped investors.
"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," the regulator said.