SEC Calmly Reminds Investors Not To Come Crying When They Lose Their Shirts Betting On Crypto Nonsense

Jay Clayton must be having a fun first year on the job.
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(Getty Images)

(Getty Images)

The SEC really didn't want it to come to this. You could have just given bitcoin its fifteen minutes, maybe thrown in some pocket change for fun, and happily gone your merry way once it all came crashing down. Maybe in the wreckage there'd be a few brazen scammers to indict and sanction, but in the final accounting it'd be just a little detour from the SEC's ordinary regulatory path.

But no. You had to diversify into ethereum and Litecoin and Ripple. You had to buy cryptokitties and blockchain buttplugs. You had to give your money to every Goldman alum who got bored one day and set up a crypto hedge fund or digital token ETF. You had to bid up every third-rate penny-stock that dropped “blockchain” in an 8-K.

So now regulators have to resort to talking to us like we're children. Commenting on a release by the North American Securities Administrators Association Thursday warning about cryptocurrencies, the SEC had this to say:

The release recognizes that cryptocurrencies, while touted as replacements for traditional currencies, lack many important characteristics of traditional currencies, including sovereign backing and responsibility, and now are being promoted more as investment opportunities than efficient mediums for exchange.

Despite the name, cryptocurrencies are not really currencies. Got that? Good, because there's more bad news:

The NASAA release also reminds investors that when they are offered and sold securities they are entitled to the benefits of state and federal securities laws, and that sellers and other market participants must follow these laws. Unfortunately, it is clear that many promoters of ICOs and others participating in the cryptocurrency-related investment markets are not following these laws. The SEC and state securities regulators are pursuing violations, but we again caution you that, if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment.

The SEC hasn't been subtle about its intention to smack some sense into the delusional world of ICOs. First it took down the “full-fledged cyber-scam” PlexCoin, which aside from the whole crypto thing sported undeniable elements of fraud. Then the agency took aim at the dearly missed Munchee ICO, whose only crime seemed to be promising investors returns without doing all the annoying paperwork associated with an actual securities offering. The trend is clear: The SEC is moving steadily toward a full-scale crackdown, and techno-utopian innocence will be no excuse.

As for investors, the last line in the SEC's statement – “if you lose money, there is a substantial risk that our efforts will not result in a recovery of your investment” — makes clear what regulators think of the digital token market. This isn't just a routine investor advisory; it's what they'd say about a ponzi scheme – which, according to some notable observers, is what cryptocurrencies are. So don't expect the SEC to be of any use when all the dogecoin you bought by taking out a second mortgage goes the way of the dodo.

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