Regulators all over North America have stepped up their game in the fight against sketchy Initial Coin Offerings and startups. As a part of a larger concerted effort to provide more security to the wild market, several organizations on the continent have issued hundreds of cease and desist letters to companies which may be in violation of existing securities laws.
Many of these enforcement actions have come as a part of the ongoing “Operation Cryptosweep,” a combined effort by hundreds of regulators within the North American Securities Administrators Association to target known violators of securities law within North America. Despite the organization’s efforts, some independent regulators have gone out on their own, targeting specific organizations operating on the blockchain.
Alabama’s official securities regulator, The Alabama Securities Commission, partnered with Texas and New Jersey regulators to take out ICO organizations that had been targeting residents in all three states. The first three of what will likely be a long list of enforcement action letters came out in the beginning of May.
Extrabit Cease and Desist
The first of three cease and desist letters was delivered to the company after rumors circulated among regulators that they had been soliciting illegally within Alabama. The organization was advertising their public coin offering, or token sale, on an NBC-affiliated website. While the ad was taken down promptly, the original advertisement claimed that buyers can purchase their token, EXB, at half of its original price.
Compounding on the list of regulatory concerns voiced in the cease and desist letter are concerns that the company pressured investors into pouring more funds into the investment, saying that they needed to place at least $20,000 in the company in order the see the kind of profits guaranteed on the company’s ICO page.
Additionally, the white paper written to describe the realities of the product made by Extrabit is accused of including “materially misleading statements” regarding the key components of the organization’s money and operational goals. This is a big problem, considering that the company is already accused of selling unregistered securities.
The securities claim is both the most damning and the most contestable portion of the regulator’s case against Extrabit. The nature of the government’s classification of cryptocurrencies as securities has been controversial from the beginning of the industry’s climb to economic prominence in the United States. Court cases currently moving through the system might help to clarify the current status of the holdings, but for now it is mostly unclear what the future might hold.
Two More Cease and Desist Letters
Extrabit is not the only company working to further its interests through ads on the internet, and it isn’t the only target of the Alabama Securities Commission. The commission also issued two cease and desist orders against ICO companies on May 2nd and May 18th, accusing the crowdfunding efforts of selling securities without following proper regulatory and registration protocols.
These three companies aren’t alone, either. Hundreds of ICOs continue to publish ads all over the web for their operations, promising significant returns while refusing to conform to traditional securities regulations regarding the creations and advertisement of their product.
The agency is working with partner regulators in Texas and New Jersey to target companies that advertise unregistered securities to local residents.