Investors Should Sleep with One Eye Open as a Reckoning is Coming for ICOs.
Initial coin offerings (ICOs) have been a useful tool as they have led to an explosion of start-up companies all around the world as these companies can raise billions of dollars through this fundraising method. However, according to the president and CEO of BATS Global Markets (Cboe), Chris Concannon, the market for ICOs is about to be hit with a tidal wave of regulations.
His expert level advice is important as Cboe is one of the world’s largest exchange holding companies, which offers cutting-edge trading and investment solutions to investors all over the globe. As a veteran on Wall Street and a long-time member of the crypto-community, Concannon understands that if ICOs are defined to be unregistered securities by the Securities and Exchange Commission (SEC), then the SEC may attack industry participants and lawsuits will certainly ensue.
In an interview with Business Insider, Concannon explained how he believes “the reckoning will come in two waves.” This reckoning will begin with the SEC investigating and taking legal action against the ICO market participants. Consequently, there will be an explosion of class-action lawsuits against the teams behind ICO projects.
Who is Chris Concannon and Why Should We Listen?
Chris Concannon is one of Wall Street’s biggest crypto enthusiasts and advocates, but is also a financial expert. As a trading veteran, Concannon thinks that current investors should stay wide awake through the night worrying about the uncertainty surrounding the market for initial coin offerings.
Concannon is currently the president and chief operating officer at Cboe Global Markets. He is personally responsible for Cboe’s trading businesses, including but not limited to, U.S. and European Equities, U.S. Options, Global Foreign Exchange and Futures.
As the CEO of Bats, Concannon showed his worth as he led the company through its successful 2016 initial public offering (IPO) as well as the Bats acquisition by Cboe in 2017. This acquisition created one of the largest global market operators to this date. Considering Concannon has more than 20 years of experience as an exchange executive, trading participant and as a regulator, business professionals all over the world notice him as a global market structure expert.
Prior to his contributions as CEO of Bats, Concannon was president and chief operating officer of Virtu Financial. He was the catalyst that helped Virtu become one of the world’s most influential market makers. Concannon has previously worked as the staff attorney at the Securities and Exchange Commission in the Division of Market Regulation from 1994 to 1997. He then joined the law firm of Morgan, Lewis and Bockius LLP.
In 1999, he transferred over to Island ECN. From Island, he became president of Instinet Clearing Services before joining Nasdaq in 2003. His work experience includes six years at Nasdaq as executive vice president.
Throughout Concannon’s career, he has worked with one successful company after another. Not only that, but he has consistently made his way to the top levels of senior management in each of these companies as he was one of the main factors to the driving force that lead to their success. Concannon’s extensive financial business experience includes six years at Nasdaq as executive vice president. He is a financial expert with over twenty years of experience under his belt, and his advice should not be ignored.
What’s Currently Happening to the ICO Market?
Starting with the good news, the crypto-community celebrated just last week when the SEC stated that ether transactions would not fall under the agency’s regulations. While this is something to celebrate for ether transactions, the SEC did not give any hint or encouragement for companies to run ICOs. This is a problem as ICOs have allowed companies to raise billions of dollars by issuing their own token in exchange for ether or bitcoin. This ability to raise money for a start-up has never been seen before the ICO.
While the ICO market has given many promising start-ups the opportunity to thrive in this competitive world we live in today, with competition comes fraud and the ICO market has been known for its fair share of fraud.
Do not let the fraud blind you from all the benefits ICOs bring to the business world. ICOs have given small tech start-ups an opportunity to raise billions of dollars from a wide-spectrum of investors; a technique that reaches investors all over the world (big time and small) that never existed in the financial world until now.
According to the Token Report, just this year, there have been more than seven billion dollars raised through the popular ICO fundraising method. ICOs are continuing to become a popular long-term investment as they have popularity among 200 crypto hedge funds and are traded on dozens of exchanges across the world.
What’s next for the ICO Market?
Whether the SEC ultimately determines the lion shore of ICOs are unregistered securities, then many players in the market could find themselves in a legal conundrum. Concannon explained, “The actual party that offered the unregistered coin, they could have been involved in issuing an unregistered security… Anyone who sold that off could be deemed an unregistered underwriter.” <
To make this statement clear, the SEC could come up with an entirely new designation for ICOs and how they should and need to be regulated. What’s scary is it’s not clear whether the SEC would retroactively go after all market participants or if the regulations would be active when signed.
While the threat of legal actions from the SEC remains on high alert, Robert Hockett, a professor of financial regulation at Cornell University, said you are only likely to see the SEC take legal actions for specific circumstances. Hockett further explains, “I don’t think it is the case that people involved in the business are going to be prosecuted against as if they have been violating the law. But there is a little bit of a room for an exception with something particularly egregious.” Meaning that a company could have previously misled investors about certain offerings or claimed it would never fall under the regulations of the SEC. This could lead to severe legal consequences for these companies for violating promises.
Despite the SEC decision, the story doesn’t change much for investors. If the SEC defines ICOs as unregistered securities, then all their holdings will be rendered valueless. According to Concannon, this would trigger the second wave of reckoning. He explained, “If you sold someone an unregistered security you are liable to them if they decide to take them to court.”
The ICO market has seen a vast and growing number of class-action lawsuits already. Just in late 2017, business litigation firm Silver Miller filed a class-action suit against Monkey Capital, a crypto hedge fund. Miller is representing the plaintiff as Money capital promoted its ICO that violated US securities law.
Any ICO that used fraudulent practices, illegal strategies, or defrauded the customer, is possibly going to face justice in the court of law. For Hockett, the regulations will help crypto finally move out of the current so-called “Wild West” phase and will bring it to a phase of “regulatory scrutiny” for the short-term.
Concannon concludes that crypto will suffer the same legal life cycle every new highly popular asset faces. Just as tulips, junk bonds, and mortgage-backed securities had their obstacles, crypto is about to face all its legal obstacles head-on. While the waters are about to get rocky as the regulations and guidelines that will lead to legal actions; when the storm clears, there will be plenty of room for true ICOs to thrive.