Massachusetts Securities Regulator Announces “Aggressive Policing” of Cryptocurrency Firms

On December 15, 2017, Massachusetts Secretary of State William Galvin announced that his office’s Securities Division (“MSD”) would begin “aggressive policing” of cryptocurrency sales in Massachusetts.  The MSD regulates the offering and sale of securities in Massachusetts.  The MSD can seek a range of civil remedies for violation of the state securities laws, including disgorgement, fines, and injunctive relief.  Galvin, in his December statement, expressed the view that all ICOs are sales of securities subject to regulation, as opposed to the federal Securities and Exchange Commission’s approach of considering each ICO on a case by case basis.  Galvin stated,  “[w]e see [ICOs] as a form of a security investment that should be regulated.”  When asked about the more nuanced approach taken by the SEC, which has stated that it at least might determine that some digital currency is a “utility” rather than a security, Galvin stated, “I don’t know what the SEC thinks.  Usually they’re second to the dance.  I’m not terribly troubled by their ambiguity.”  That said, the SEC also been vigorously policing ICO’s, and SEC Chairman Clayton, in his December 11 statement on cryptocurrencies and ICO’s, stated that “by and large, the structures of [ICOs] that I have seen promoted involve the offer and sale of securities.”  Thus, as a practical matter, Galvin’s office and the SEC may land in close to the same place in their enforcement approaches.  In the several weeks since Galvin’s announcement, the MSD has issued subpoenas to a number of companies in Massachusetts that have undertaken ICOs.  The number and status of the investigations are nonpublic.

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