On January 4, 2018, the North American Securities Administrators Association (NASAA) released an investor reminder regarding the risks associated with cryptocurrencies, initial coin offerings (ICOs), and cryptocurrency-related investment products.  In the warning, the NASAA described factors that investors should consider before making investments in cryptocurrencies and cryptocurrency-related investment products, as well as common red flags of investment fraud.

Shortly after the NASAA released its investor warning, Securities and Exchange Commission (SEC) Chairman Jay Clayton and Commissioners Kara Stein and Michael Piwowar released a statement in support of the NASAA’s investor warning.  The statement follows the SEC’s release of numerous investor alerts related to cryptocurrency, its recent creation of a Cyber Unit tasked with combating cyber-related misconduct, and its enforcement actions related to ICOs.

Collectively, these actions signal the continued focus of the SEC and state regulators on investor protection and the potential risks of fraud related to cryptocurrencies, ICOs, and cryptocurrency-related investment products.  In its statements, the SEC distinguishes cryptocurrencies from traditional currencies, and then goes on to emphasize that many promoters of ICOs and some others participating in the cryptocurrency-related investment markets are not following the securities laws.  In so doing, the SEC could be signaling that, in addition to pursuing anti-fraud claims, it intends proactively to address violations of other provisions of the securities laws, such as registration requirements, that do not require the SEC to show any fraudulent or deceptive intent.  The SEC took this approach in December 2017 when it halted an ICO by Munchee Inc.  The SEC or state securities regulators could pursue similar actions in the future as a means of discouraging unregulated investment activity even absent fraud.