According to Jay Clayton who is the Chairperson of US Securities and Exchange Commission (SEC), the Initial Coin Offering (ICO) market is very opaque and may be vulnerable to manipulation. The manipulation could be done by issuing tokens for startups. He actually compared ICO to penny stocks and hidden fees on investment products.
According to Clayton, “Most investors do not like that ICO management has control to the immediate liquidity. This is because they may buy the tokens at a favorable price. This is why trading of tokens in such platforms is highly vulnerable to price manipulation among other fraudulent trading activities.” Clayton was speaking at the Practicing Law Institutes Institute on securities regulation. The seminar was held in early November 2017.
According to Clayton US Securities and Exchange Commission fund to that Ethereum funding platform, DAO died because of similar circumstances. He cautioned that it’s important for Cryptocurrencies to be secured and registered to independent agencies to operate well.
He said that Penny Stocks and ICOs are just the same because they are a fertile source of manipulation. In most cases, they just manipulate unsuspecting investors. The Chairman also proposed for proper policies to be put in place and good regulation to ensure equity.
He went on to say that SEC will work with investors and all industry players to have strategies to reduce ICO opacity in trading. The main aim will be to protect the interest of investors and the integrity of the market. If such malpractices continue investors will run away from ICO investment, and this will have a very negative impact.
“The US Securities and Exchange Commission is not yet having policies or immediate answers in this area. However, we are looking for ways to fight this Opacity. Our main aim will be to create a conducive environment that will not allow misconduct.” Clayton concluded.