Texas is at the forefront of using its state securities laws to go after allegedly fraudulent cryptocurrency investment schemes, and as digital currency offerings grow more popular, more states are expected to follow suit, experts say.<\/p>\n
The\u00a0Texas State Securities Board<\/a>\u00a0found \u201cwidespread fraud\u201d during a monthlong investigation into cryptocurrency investments, leading to seven regulatory actions with dozens more investigations open, it said in\u00a0an April 10 report<\/a><\/strong>. The agency said it was the first state securities regulator to enter an order against a cryptocurrency firm, with a cease-and-desist order against BitConnect in January, and had entered the most orders of any state regulator.<\/p>\n And while Texas has been out front in recent months, other states are beginning to get in on the action. North Carolina in January barred lending and exchange platform\u00a0BitConnect from operating, New Jersey\u00a0went after<\/a><\/strong>\u00a0Bitcoiin B2G in March for offering unregistered securities\u00a0in connection with its initial coin offering, and in March, Massachusetts\u2019s securities regulator\u00a0issued consent orders<\/a><\/strong>\u00a0halting five initial coin offerings.<\/p>\n \u201cIn terms of enforcement activity, it\u2019s really been in the last few months that we\u2019ve seen some action in our states,\u201d David McGill of\u00a0Kobre & Kim LLP<\/a>\u00a0said.<\/p>\n McGill said state regulators have been taking some time to get a baseline understanding of what\u2019s happening with cryptocurrency and technical knowledge about the digital currency offerings.<\/p>\n \u201cIt\u2019s taken state regulators some time to develop that understanding,\u201d McGill said. \u201cI think they\u2019re now poised to be more aggressive. My expectation is this will be a hot area for regulators both at the state and federal level for the rest of 2018.\u201d<\/p>\n Bitcoin skyrocketed in value in late 2017 to peak above $19,000 in December, triggering water-cooler talk across the country about how much money could be made by investing in digital currency. With all the elements of a traditional \u201cmarket mania\u201d at play, regulators grew concerned the public could be duped, Kobre & Kim\u2019s Ben Sauter said.<\/p>\n Several states have issued investor alerts warning about fraudulent offerings, especially in the context of initial coin offerings or ICOs. Their warnings follow the lead of the\u00a0U.S. Securities and Exchange Commission<\/a>\u2019s cautions about ICOs and investigations of the offerings.<\/p>\n \u201cLook, there\u2019s no doubt that the industry has been rife with fraud and scams,\u201d Sauter said. \u201cThe regulators are obviously needed to curb some of the misconduct. They don\u2019t want to stifle the innovation but have to patrol the frauds and scams.\u201d<\/p>\n McGill said Texas has established itself as an industry leader in trying to curb abusive practices in the cryptocurrency arena, but other state regulators are moving in that direction. Given the wide range of states that have issued investor alerts, it\u2019s likely even more states will start taking their own hard look at the activity happening on their home turf if they\u2019re not doing so already, he said.<\/p>\n States have also explored regulating cryptocurrencies. New York set up what\u2019s been dubbed a \u201cBitLicense\u201d tailored to virtual currency companies, and in February\u00a0issued guidance<\/a><\/strong>cautioning virtual currency companies to look out for market manipulation. Meanwhile, Washington and California have worked on licensing regimes specific to virtual currencies.<\/p>\n Additionally, Delaware in August\u00a0made it legal<\/a><\/strong>\u00a0for entities incorporated there to use distributed ledger technology, including the blockchain technology that underpins cryptocurrency, for record-keeping and administration of stock ledgers. And Wyoming has exempted virtual currency from property tax.<\/p>\n Though some states have dipped their proverbial toes into the waters of regulating digital currencies, most are taking a \u201cwait and see\u201d approach to regulation, Jim Jalil, chair of the blockchain and cryptocurrency practice at\u00a0Thompson Hine LLP<\/a>, said. He said states are generally\u00a0looking to the federal government<\/a><\/strong>\u00a0for direction on a big-picture regulatory approach to virtual currencies.<\/p>\n In the meantime, they\u2019re approaching cryptocurrency scammers from an enforcement perspective that targets bad actors without implicating the technology itself as problematic, he said.<\/p>\n \u201cA bad actor could be in cryptocurrency or even gold \u2014 you could be selling gold that doesn\u2019t exist,\u201d Jalil said. \u201cThere\u2019s bad actors in everything. Nobody\u2019s in favor of them. Their use of technology doesn\u2019t in any way debase the technology.\u201d<\/p>\n To that end, government enforcement can be a partner with legitimate cryptocurrency industry actors to protect the underlying blockchain and distributed ledger technology, he said, adding that it\u2019s beneficial and helpful as long as it\u2019s not heavy-handed.<\/p>\n Jalil said Texas has been a leader among states by approaching cryptocurrencies with a positive eye that doesn\u2019t stifle their use.<\/p>\n \u201cI love Texas. Texas is always out in front,\u201d Jalil, who is based in New York, said.<\/p>\n Texas \u201cstepped up\u201d to the enforcement plate and played a crucial role in exposing an alleged $2 billion cryptocurrency scam run by BitConnect, said David Silver of Silver Miller. BitConnect shuttered its lending and exchange platform weeks after a\u00a0cease-and-desist order from Texas<\/a><\/strong>\u00a0and other regulatory attention and has since been hit with\u00a0investor litigation<\/a><\/strong>.<\/p>\n Silver represents investors who have lost money to frauds and accidentally became one of the most prolific lawyers working on behalf of cryptocurrency investors. He\u2019s happy about state regulators investigating cryptocurrency offerings and other cryptocurrency-related investments and passing rules to prevent fraud. But he said private actions like the ones he litigates are still the best way for investors to get their money back.<\/p>\n \u201cNew York wants accountability and transparency,\u201d Silver said. \u201cThat takes years to happen. It doesn\u2019t happen overnight. All the people who lost money need help faster \u2014 that\u2019s where I come in.\u201d<\/p>\n Read the Full Article:<\/p>\n