A federal judge ruled this week that U.S. securities laws might cover initial coin offerings — otherwise known as ICOs — in a big win for regulators and investors looking for more oversight over billions of dollars in cryptocurrencies that operate much like stocks.
According to an article by Bloomberg, the ruling came after a New York man was charged with promoting digital currencies backed by investments in real estate and diamonds, investments prosecutors say never existed.
District judge Raymond Dearie said Tuesday that the government can move forward with its case alleging that ICOs are a security for the purposes of criminal law. ICOs have already raised nearly $19 billion this year according to Coinschedule.com. The Securities and Exchange Commission says the fund raising method should be regulated and believes the market is rife with fraud.
“This ruling affirms the SEC’s position that it has authority over ICOs and that market manipulation and anti-fraud provisions in the law apply,” Peter Henning, a professor at Wayne State University’s law school in Detroit, said in an interview. “The defense here was arguing that it’s not a security, but the judge has rejected that claim, saying that this case can fit under the securities laws, and that’s an important first step.”
“Per the indictment, no diamonds or real estate, or any coins, tokens, or currency of any imaginable sort, ever existed — despite promises made to investors to the contrary,” Dearie said in his ruling. “Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract — a security — into a currency.”