Vermont Issues Cease and Desist Order to LevelNet as Operation Cryptosweep Gathers Pace
“Operation Cryptosweep” is a joint probe by American and Canadian Securities regulators aimed at tackling fraudulent Initial Coin Offerings (ICOs) has scored a major takedown. On June 4, 2018, the Vermont Department of Financial Regulation (DFR) issued a cease and desist order to the cryptocurrency startup LevelNet based in Irving, California for violating several clauses in the Vermont Uniform Securities Act in the course of its ongoing ICO.
Unfounded and Unrealistic Expectations
Stephanie Brackin, an Information Management Officer at the Vermont Department of Financial Regulation, confirmed the takedown, stating that LevelNet has been ordered to immediately stop advertising its ICO and doing business in the state of Vermont.
So named because of its focus on cryptocurrency ICOs, Operation Cryptosweep is a bilateral effort between the US and Canada that seeks to sanitize the ICO market and protect investors.
A press release issued by the DFR states that the LevelNet ICO was flagged and investigated on account of the claims and promises it made to investors. Upon conclusion of the investigation, it was determined that LevelNet violated Vermont law by “deceptively advertising unfounded and unrealistic investment returns and failing to properly register the investment.”
As a result, LevelNet has been issued a ban on all advertising and business activities in the state of Vermont effective immediately. The move marks a new phase in the relationship between American authorities and the burgeoning ICO industry, as regulators move on from issuing warnings to potential investors to directly engaging with ICO platforms and cryptocurrency companies to make sure that they comply with existing laws.
While a China-style ban on ICOs and crypto-trading activities in the US remain extremely unlikely, this development is an indication that regulators across North America are now willing to wield their power to ensure that ICOs so not fall foul of the rules. That in itself might be a subtle hint that after years of uncertainty, American financial regulators are increasingly coming to think of cryptocurrencies and ICOs as a fixed and non-transient part of the financial landscape to be regulated instead of ignored.
Sweeping Vermont Clean
Operation Cryptosweep forms an important part of a bilateral financial law enforcement strategy by the North American Securities Administrators Association (NASAA). Under this framework, state regulators aim to crack down on the proliferation of fraudulent crypto-related investment schemes, at a time when an estimated 81 percent of all new ICOs are rated as scams.
The membership of NASAA is drawn from over 40 jurisdictions across North America, including Vermont. To date, Operation Cryptosweep has resulted in nearly 70 inquiries and investigations and 35 pending or completed enforcement actions related to ICOs or cryptocurrencies since the beginning of May 2018 alone. Speaking about Operation Cryptosweep, Commissioner Michael Pieciak stated:
“The rapid rise of Bitcoin has made Main Street investors aware and interested in cryptocurrencies and ICOs. Although many are legitimate offerings that are fully compliant with the law – many are not – and this order serves as a good reminder to exercise caution when considering investing in these products.”