On February 20th, the U.S. Securities Exchange Commission (SEC), the top securities watchdog in America, announced that cybersecurity play Gladius Network had self-reported its 2017 token sale as an unregistered security offering and the startup would be taking remedial steps to right its violations of U.S. securities laws.

Gladius, a Washington D.C.-based company focused on leveraging the Ethereum blockchain to mitigate Distributed Denial of Service (DDoS) attacks, had raised more than $12 million USD in an initial coin offering near the peak of the 2017 cryptoeconomy bull run.

The SEC

SEC Maintains Position on ICOs

Over the last several years, however, the SEC has repeatedly maintained that many such token sales qualify as unregistered securities offerings under U.S. federal law. As anxieties over securities regulations crackdowns reached a fever pitch in America’s nook of the cryptoverse in 2018, the Gladius team pivoted toward caution and self-reported an unregistered ICO to the Commission last summer.

The company cooperated with the watchdog’s ensuing investigation and committed to taking remedial actions. Now, “without admitting or denying the findings,” Gladius has agreed to register its token as a security with the SEC and will return funds to any of its ICO investors that request their investments back.

“The SEC has been clear that companies must comply with the securities laws when issuing digital tokens that are securities,”  said SEC Cyber Unit head Robert Cohen. “Today’s case shows the benefit of self-reporting and taking proactive steps to remediate unregistered offerings,”

The latest enforcement flex comes after the Commission has undertaken a spree of enforcement actions toward enterprises in the cryptocurrency space in recent months. Last November, the agency settled charges with EtherDelta founder Zachary Coburn after the regulator determined EtherDelta had started out as an unregistered securities exchange.

That same month, the Commission settled charges with another two token projects, Airfox and Paragon Coin, as their ICOs were deemed to be unregistered securities offerings. And in December 2018, the SEC fined music producer DJ Khaled and boxer Floyd Mayweather for illegally marketing Centra Tech in having failed to disclose they were paid to promote the token play.

More recently, social media business Kik said last month they expected the SEC to undertake enforcement actions related to the company’s kin token offering from 2017. Kik CEO Ted Livingston said the company was prepared to fight any forthcoming regulatory flex in court, a possibility that would mark a sharp break in style from smaller projects’ more deferential posturings toward the Commission over the last year.

The Regulatory Landscape in America Remains Paradoxical

There are several U.S. government agencies that exercise oversight over various aspects of commerce in the nation, and to date, they’ve all had different things to say on how cryptocurrencies should be regulated there.

For example, the Internal Revenue Service (IRS) slots cryptocurrencies as “property” for tax purposes, which bears capital gain and loss implications. The SEC, for now, has maintained that most tokens are securities. The U.S. Commodity Futures Trading Commission (CFTC) hails crypto-assets as commodities. And the U.S. Treasury’s Finance Crimes Enforcement Network (FinCEN) sees cryptocurrencies as money, a position courts in America have started pointing to with more frequency.

Even in this labyrinthine, ambiguous landscape, there’s apparently more room for debate. Late last year, a federal court in California challenged the SEC’s designation of Blockvest, a forthcoming cryptocurrency exchange, as being an unregistered securities exchange. The court suggested the Commission’s interpretation of securities was too expansive.

Barring the passing of a federal bill that establishes the formal status of cryptocurrencies, the regulatory confusion is only set to continue in America. Though it remains to be seen if any such bill will be able to actualize for the foreseeable future.

Meanwhile, in the U.K., the Financial Conduct Authority (FCA) published a consultation paper last month in which it tentatively argued that utility tokens weren’t securities under its purview, a more permissive position than what’s been seen from the SEC across the pond.



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Posted by William M. Peaster

William M. Peaster is a poet, novelist, and cryptocurrency editor. He is not a financial adviser. He enjoys covering both the promise and warts of the emerging cryptoeconomy. Follow him on Twitter: @WPeaster


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