In its attempts to counter cyber threats to the financial sector, the U.S. Securities and Exchange Commission has launched two new initiatives to address Blockchain and ICO-related violations.
Startups participating in ICOs are open to a much faster alternative to the traditional financing processes.
An ICO (or Initial Coin Offering) is pretty much like an IPO (or Initial Public Offering), except that it’s related to Distributed Ledger Technology (DLT), for which Blockchain is the most common example.
Another difference is that ICO is a mostly-unregulated means of funding used by startups to raise crowd funding in the form of cryptocurrencies, such as Bitcoin and Ethereum.SEC targeting Blockchain and ICO violations.Click To Tweet
U.S. SEC: With new Tech Comes new Challenges
The same technological advances that improved many aspects of financial life has also helped the evolution of financial crime.
If ICOs allow anyone with the minimum funds to invest in projects otherwise they couldn’t get access to, the funds themselves often have no investment threshold and could therefore lead to over-capitalized projects, let alone the number of scam possibilities on both ends.
According to a report by Chainalysis, there are about 30,000 victims of Ethereum-related cybercrime, each of whom lost an average of $7,500 USD worth of Ethereum, amounting to $150 million fallen in the hands of cyber thieves.
In 1972, the SEC (the Securities and Exchange Commission) created its Enforcement Division to enforce federal securities laws.
And now the SEC has to update its system to address cybercrime that has reached unprecedented proportions, especially to oversee Blockchain and protect retail investors.
On Sept. 25th, 2017, the SEC issued a press release where it announced the launch of two new initiatives that, in complementing its ongoing law-enforcing efforts, will be dedicated to targeting DLT and ICO violations.
1. Cyber Police
This cyber-unit will build on the SEC Enforcement Division’s decades-long expertise to target cybercrime violations, such as:
- ICO and Blockchain technical violations
- Manipulating the market through the dissemination of false information online
- Obtaining classified non-public information
- Financial misconduct using the dark web (like buying illicit goods using cryptocurrencies)
- Intrusions into retail Brokerage accounts
- Cyber threats market infrastructure, like trading platforms.
2. Retail Strategy Task Force
In addition to cyber-related violations, the protection of individual investors is a priority for SEC.
For that reason, the SEC has also established the “Retail Strategy Task Force”, which will be tasked with developing proactive and targeted measures to detect fraudulent behavior that affects mainstream investors.
Comprised of law-enforcement personnel from around the country who will collaborate with SEC’s staff, the task force will build on SEC’s long and successful experience in prosecuting fraud against retail investors.
Although the SEC has been planning these initiatives for months, it chose to announce their launch only recently. The announcement comes on the heels of the news that broke just days ago when it was revealed that the SEC’s EDGAR filing system was hacked last year.
The breach, which targeted corporate sensitive information, is now under investigation by the FBI and the U.S. Secret Service.