The Securities and Exchange Commission recently created an enforcement unit to combat cyber-related crime, including violations involving distributed ledger technology (DLT, such as blockchain) and initial coin offerings (ICO, a form of crowdfunding with cryptocurrencies, such as Bitcoin). It also plans to address misconduct perpetrated through the “dark web,” along with intrusions into retail brokerage accounts, and cyber-related threats to trading platforms and other critical market infrastructure.
Additionally, the unit plans to focus on market manipulation schemes involving false information spread through electronic and social media, and hacking to obtain material nonpublic information. “Cyber-related threats and misconduct are among the greatest risks facing investors and the securities industry,” said Stephanie Avakian, co-director of the SEC’s enforcement division. “The cyber unit will enhance our ability to detect and investigate cyber threats through increasing expertise in an area of critical national importance.”
How much confidence market participants will have in the agency’s activities in this regard remains to be seen. After all, the SEC recently revealed its own EDGAR system had been compromised last year. Meanwhile, this past July, the agency warned market participants that offers and sales of digital assets by “virtual” entities are subject to US securities laws. Such activities, executed by operations using distributed ledger or blockchain technology, are sometimes referred to as ICOs or “token sales.”
The SEC noted that issuers of distributed ledger or blockchain technology-based securities are required to register their transactions unless a valid exemption applies. Participants in unregistered transactions also may be violating the securities laws.
Additionally, securities exchanges providing for trading in these securities have to register unless they are exempt. The SEC is studying the effects of distributed ledger and other innovative technologies and wants to foster innovative and beneficial ways to raise capital while ensuring that investors and markets are protected.
