Well, if we have so many examples of unregistered sales of securities,
and we have so many examples of situations where there appears to be
significant fraud associated even with the largest of these Initial Coin Offerings,
a reasonable question to ask is where's the SEC?
What are they doing about this?
It's a darn good question.
I wish I had a good answer.
By my count, the Security and Exchange Commission has brought
only six enforcement actions as of July of 2018,
in a situation where there are thousands of examples of
securities fraud violations involving billions of dollars.
I'd been publicly quoted as saying,
this is the largest violation of the federal securities laws since the Code of Hammurabi.
Interesting question.
Why is the SEC doing nothing?
Well, there's several possible explanations,
and I don't know that any of them is satisfactory.
One is that the SEC doesn't understand the magnitude or the nature of this problem.
I find that hard to believe,
they read the same newspapers that we do.
They can read the same research reports out of the University of Pennsylvania.
They can look at the same studies that the Wall Street Journal has done.
So the possibility that the SEC isn't clued in as to the nature of these issues,
strikes me as implausible.
The second possibility is that developing these cases takes time.
If we look at the history of SEC enforcement actions,
it turns out that on average from the time the SEC begins an investigation,
to the time that they actually bring a proceeding is about 22 months.
So it may be that the SEC is hard at work behind the scenes,
developing a large number of these cases.
And that at some point in the future,
we're going to see a deluge of litigation against some of
these ICOs that haven't been registered or that are fraudulent.
A piece of me hopes that's the case,
but I wouldn't exactly bet the farm on it.
Third possibility is what I call strategic surrender by the SEC.
The SEC could stand back,
and the SEC could say, wait a minute.
If we brought these cases and if we prevailed, what would we get?
We would typically get an injunction that tells these people not to do it again,
and then we get an order that says return the money.
But if many of these people are outside our jurisdiction,
and if it's in crypto in the form of Bitcoin or Ether,
and if we don't have the ability to track it,
then what good is the remedy?
I'm gonna argue there are other ways that we could go at these people,
but I understand the SEC's argument that wait a minute,
we may not have an effective remedy and rather than pursue all of these people in court,
and get hollow victories with injunctions that we really can't enforce,
we'll use our resources for something else.
Another theory is that the SEC says, hey, wait a minute.
Let the states deal with it.
Well, that's interesting.
The states have in fact brought approximately 70 actions.
The states have been about 10 times more
active in this area than the Securities and Exchange Commission.
But I would ask, wait a minute.
A lot of this activity is international.
A lot of it is national.
As a practical matter,
none of it is localized to Texas or Massachusetts.
You don't find Internet offerings limited to people in Austin or Topeka.
It's a national phenomenon.
And if it's a national phenomenon,
shouldn't the SEC be on the case?
Other possibility, resource allocation.
We only have so many lawyers at the SEC,
there are only so many frauds that we can chase,
you know, at any one point in time.
So we're gonna follow other things.
We're gonna pursue other people.
That's an interesting point, and the question that I would pose to the SEC is,
what else are you doing that so much more important than
pursuing these large and obvious frauds,
which are hitting many people who were basically mom and pop on Main Street,
don't understand what goes on in the world in crypto,
and wanna catch a little piece of the magic.
All right. You know, they wanna be as rich as
the people who got in on Bitcoin when it was a nickel,
and it rose up to $20,000 only now to collapse down to six. All right.
They- they want a piece of that too,
and many of them are losing everything as they're chasing that dream.
Another possible explanation has a moral dimension.
Look, what's going on here?
What we have is a bunch of
libertarian crypto anarchists ripping off another bunch of libertarian crypto anarchists,
and we as the United States government don't want to get in the middle of
one bunch of libertarian crypto anarchists
ripping off other libertarian crypto anarchists.
So you guys have fun.
I take a little bit of a different approach here.
From my perspective, I think it's important for the SEC to
assert its jurisdiction where it legitimately exists in this area.
And if it were up to me and it's not,
I'd be filing lots of actions,
making relatively straightforward claims,
that these are securities,
they should have been registered, they weren't registered.
But in addition to the traditional remedies of getting the injunction,
and an order that says, Pay back the money and I know the money is not coming back.
I would borrow some techniques from intellectual property lawyers,
that litigate copyright cases over the Internet with great frequency.
And what I would do is I'd get a provision of the injunction that
limits the abilities of providers on the Internet,
all right, of hosts and of search engines to post information relating to these frauds.
So you can get a court to issue the equivalent of a take down order saying,
if this white paper by this organization,
violates this injunction, you
then won't be able to find it if you search for it on Google.
It won't be allowed to be hosted on these different places on the Internet.
All right. Now, that doesn't stop the fraud. I get that.
But what it does is it makes the search costs to find the fraud much higher,
and if those search costs are increased,
then the number of people who will wind up
investing in that particular fraud will go down.
I agree we're not going to be able to stop this kind of fraud,
but if we make it more difficult and more expensive for people to
perpetrate the fraud by directing these offers into the United States,
we can take steps to protect people from obvious scams that are out there.