SEC Crackdown on Celebrities to Send Clear Message
When it comes to legal acceptance of new business practices, there is hardly anything clearer than a regulatory watchdog’s crackdown. Blockchain, although growing considerably in the last two years, faces obstacles when it comes to governmental acceptance of the industry. This is especially true for a sub-segment of the crypto market – Initial Coin Offerings (ICOs).
Additionally, not only do crypto fundraisers face strict scrutinization but their endorsers as well, no matter how famous they are. Judging by the fines that Floyd Mayweather Jr. and Khaled Khaled (aka DJ Khaled)felt recently, it seems that situation is not bound to change anytime soon.
ICO Promotion Drags Mayweather and DJ Khaled Down
On November 29, the U.S. Securities and Exchange Commission (SEC) imposed $750,000 disgorgement on Floyd Mayweather Jr. and Khaled Khaled. The catalyst of the crackdown is the failed disclosure of payments received from several ICOs. Mayweather Jr. agreed to pay disgorgement of $300,000, civil money penalty $300,000 and prejudgment interest of $14,775.67. Likewise, DJ Khaled agreed to pay disgorgement of $50,000, civil money penalty $100.000 and prejudgment interest of $2,725.72.
Cumulatively, both celebrates accumulated over $350,000 due to their ICOs promotions (professional boxer took $300,000, musician $50,000). The message, apart from the failed disclosure, was quite clear regarding ICOs. SEC does not look upon crypto fundraisers favorably, as past actions bare witness. However, the fact that even celebrities face charges shows just how serious legal watchdog really is about ICO crackdown.
In October this year, SEC moved to increase its activity within the ICO market, following the dozens of subpoenas at the beginning of 2018. With updated game rules, future coin fundraisers face even tougher task of convincing the regulatory body of its legality. The movement reflects SEC’s fears of what seems to be a largely unsafe market. According to several studies, a large number of CIOs are scams (80% according to Statis Group).
Thus, SEC’s representatives decided to further develop a regulative scorecard that all ICO projects should pass. On November 15th, SEC handed out fines to two companies for their ICOs, further reinforcing its negative outlook towards crypto fundraisers. Thus, it is no wonder why the ICO industry suffered in the last quarter of 2018. In terms of value raised, ICO market declined by 85% in October and November compared to the same period in 2017.
Declination of Nine Bitcoin ETFs
Celebrities and ICOs are not the only ones to feel SEC’s wrath within the blockchain industry. The now-famous bitcoin ETFs paved the way for regulators to take a clear stance on coin fundraisers and trading. ProShares, Direxion, and GraniteShares all saw refusal of bitcoin ETF legalization, due to the lack of sound prevention policies for fraudulent and manipulative acts and practices. All three proposals had the same comment as an explanation for the ETFs’ refusal.
Through later explanations, SEC disapproves of decentralized and private blockchain networks. The main reason lies in the potential for criminals to conduct money laundering and terror financing through such marketplaces.