So, what about the CFTC and FINRA?
The CFTC has designated virtual currencies as commodities. Therefore, ICOs may fall under its jurisdiction. Fraud and manipulation involving cryptocurrencies traded in interstate commerce are appropriately within the purview of the CFTC, as is the regulation of commodity futures tied directly to cryptocurrencies. That said, products linked to the value of underlying digital assets may be structured as securities products subject to registration under the Securities Act of 1933 or the Investment Company Act of 1940.
Different from the SEC, the CFTC has been mostly quiet in its handling of fraudulent activities regarding ICOs. Nonetheless, the increasing use of ICOs for fraud has prompted them to issue a customer advisory to alert customers to exercise caution and conduct extensive research before purchasing digital coins or tokens.
In its advisory, the CFTC indicates that several studies and news reports show that many ICOs are fraudulent or the underlying products or services fail to live up to their promises. Estimates of fraud range from 5 percent to more than 80 percent of ICOs. One report also identified nearly 300 offers that contained plagiarized investment documents, promises of guaranteed returns or fake executive teams. Another report indicates that after one year from their ICO, almost half of all the projects or companies have failed or shut down.
These grim studies and statistics may prompt the CFTC to take a more proactive approach when dealing with ICOs. This approach is expected to be in line with the SEC’s position, as both entities have regularly complemented each other when regulating ICOs. In January, SEC Chairman Clayton, CFTC Chairman J. Christopher Giancarlo issued a joint statement and indicated that the CFTC and SEC will work together to bring transparency and integrity to cryptocurrency markets, expressing the agencies’ commitment to deter and prosecute fraud and abuse.