The SEC and the CFTC – One Voice Cautiously Optimistic

On February 6, 2018, the US Senate Banking Committee hosted a hearing (the “Hearing”) entitled “Virtual Currencies: The Oversight Role of the U.S. Securities and Exchange Commission (the “SEC”) and the U.S. Commodity Futures Trading Commission (the “CFTC”)”. The Chairman of the SEC, Jay Clayton, and the Chairman of the CFTC, J. Christopher Giancarlo, delivered joint remarks during the Hearing and presented the regulatory history of the crypto sectors, but also noted that emerging technologies, such as distributed ledgers, have the “potential to further influence and improve the capital markets and the financial services industry.” Further, the SEC praised Facebook and other social media platforms for responsibly curtailing ICO and cryptocurrency advertising. The tone of Chairman Clayton’s remarks emphasized a true commitment to understanding crypto assets, including Initial Coin Offerings (“ICOs”), and how the to protect the investing public. Also, Chairman Clayton stressed that it is possible to conduct an ICO in the U.S. without triggering the SEC’s registration requirements under Section 5 of the Securities Act of 1993, if the issuer follows the requirements under Regulation D, Rule 506. See page 5, footnote 10, of the SEC’s Hearing transcript (link below).

Advisers to private funds trading crypto assets must also carefully review the exemption and registration requirements under the Investment Advisers Act of 1940 and the Commodity Exchange Act of 1936. In sum, the SEC and the CFTC have implemented robust cyber units, marshalling abundant resources to track the development of crypto assets with a mission to protect Main Street investors in the U.S. and abroad. However, Chairman Clayton cautioned U.S. investors that invested in non-US offerings, that the SEC may not be able to protect U.S. investors where a non-U.S. “exchange” or non-U.S. issuer does not comply with the U.S. federal and state securities laws.

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If you have questions about this Alert, please contact Dan Viola at 212.573.8038,