The SEC recently warned that celebrities who endorse ICOs may be committing securities fraud.

With Bitcoin and other cryptocurrencies continuing to increase in value, the Securities and Exchange Commission (SEC) has been keeping a close eye on so-called Initial Coin Offerings (ICO) and the people who promote them. As Forbes reports, the SEC recently warned that celebrities and others who endorse an ICO without revealing whether or not they are being compensated for that endorsement may be committing securities fraud and other securities violations.

ICOs and securities

ICOs are tokens offered to the public by a company similarly to how shares are offered during an initial public offering. The ICO is a way for the company to raise capital. Such tokens are typically bought with Bitcoins or another cryptocurrency, although sometimes with a credit card. Holders of the tokens then have the right to engage in exclusive opportunities, such as an automated investment project. The tokens, however, can also be resold on secondary markets.

ICOs have been controversial because, according to skeptics, they are simply a form of shares that are being sold without a license, which would be a violation of securities law. Indeed, as Fortune reports, in July 2017 the SEC ruled that at least in one particular case the tokens being offered by a German company were securities. While that ruling made clear that whether other ICOs would also be considered securities would depend on the "facts and circumstances" of each case, it did at least indicate that the SEC is leaning towards treating ICOs as securities.

Endorsements may be illegal

The SEC cited that July report when they recently released a statement warning that celebrities and other public figures may be in violation of anti-touting laws and anti-fraud provisions for endorsing ICOs without clarifying that their endorsement has been paid for either directly or indirectly. Those celebrities could also be held liable for acting as unregistered brokers and for participating in the transaction of an unregistered security.

ICOs have become big business and have already raised about $2 billion so far this year alone. Recent moves by the SEC have yet to result in fines or arrests for players in the ICO market, but those moves could be an indication that regulators are planning on taking a tougher stand against what in many cases appear to be the selling of unregistered securities.

White collar crime

ICOs and cryptocurrencies represent a new frontier in securities law and what constitutes a crime in relation to ICOs and cryptocurrencies is still very much up for debate. However, it should come as no surprise if the SEC begins to crackdown on ICOs. For those who find themselves facing fines and legal problems because of alleged securities law violations, it is important to reach out to a criminal defense attorney who specializes in white collar crime. Such an attorney can help clients defend their rights and help them build a strong case against any charges laid against them.