With increased attention to how securities laws may apply to digital token sales and the disruptive nature of increased cyber threats to the investor community, the Securities Exchange Commission (“SEC”) last week announced two new initiatives. The SEC’s press release, found here, outlined the creation of the Cyber Unit (“Unit”) and the Retail Strategy Task Force (“RSTF”).
According to the press release the Unit will focus the Enforcement Division’s substantial cyber-related expertise on targeting cyber-related misconduct, including:
- Market manipulation schemes involving false information spread through electronic and social media
- Hacking to obtain material nonpublic information
- Violations involving distributed ledger technology and initial coin offerings
- Misconduct perpetrated using the dark web
- Intrusions into retail brokerage accounts
- Cyber-related threats to trading platforms and other critical market infrastructure
The Unit will operate as a working group to “coordinate information sharing, risk monitoring, and incident response efforts.” Robert A. Cohen, the former co-chief of the SEC’s Market Abuse Unit, will lead The Unit.
Separately, the RSTF has been established to “develop proactive, targeted initiatives to identify misconduct impacting retail investors.” The task force intends to increase its leveraged use of data analytics and technology to identify large-scale misconduct affecting retail investors. We believe the separately mentioned distributed ledger technology or initial coin offerings in the announcement provides an implication that such offerings could be the focus of attention of the RSTF.
With all the news surrounding crypto token markets and the recent comments by the SEC Chair regarding the risks involved, we should not assume the timed announcement of these two new initiatives is just a coincidence. In fact, in the press release, Chairman Clayton’s comment that these new initiatives “reflect the division’s continual efforts to pursue new forms of misconduct while keeping a watchful eye out for our Main Street investors,” is a clear indication of the SEC’s wary bias.
If you’re considering undertaking an initial coin offering or investing in a crypto token or coin, please contact us to assist in conducting the appropriate due diligence.