North American securities regulators say over 200 crypto investigations are under way

The North American Securities Administrators Association said that its ongoing "Operation Cryptosweep" has now expanded to 200 investigations and resulted in 46 enforcement actions

What has happened?

The North American Securities Administrators Association (NASAA) has announced that "more than 200 active investigations" into initial coin offerings and cryptocurrency-related investment products are currently under way by state or provincial securities regulators in the US and Canada.

What does this mean?

In a press release, NASAA said that its ongoing "Operation Cryptosweep", which was launched in May, has now expanded to 200 investigations and resulted in 46 enforcement actions.

Some of the investigations involve suspected securities fraud, but other potential violations of state and provincial securities laws are also coming to light, including failure to properly register a product before it is offered to investors.

NASAA President and Alabama Securities Commission Director Joseph P. Borg said that regulators are "committing significant regulatory resources to protect investors from financial harm involving fraudulent ICOs and cryptocurrency-related investment products and also are raising awareness among industry participants of their regulatory responsibilities".

He added:

“While not every ICO or cryptocurrency-related investment is a fraud, it is important for individuals and firms selling these products to be mindful that they are not doing so in a vacuum; state and provincial laws or regulations may apply, especially securities laws. Sponsors of these products should seek the advice of knowledgeable legal counsel to ensure they do not run afoul of the law. Furthermore, a strong culture of compliance should be in place before, not after, these products are marketed to investors.”

Borg reminded industry players that any product that qualifies as a security needs to be registered with the appropriate regulatory agency or qualify for an exemption from registration.

He also advised investors to "do their homework" and "be cautious when dealing with promoters who claim their ICO offering is exempt from securities registration but do not ask about your income, net worth or level of investing sophistication".

Operation Cryptosweep was announced in May 2018 and saw securities regulators in North America launch dozens of investigations into potentially deceitful cryptocurrency investment products, in one of the largest co-ordinated series of enforcement actions by state and provincial officials in respect of virtual currency scams.

Founded in Kansas in 1919, NASAA is the oldest international investor protection organisation.

Its membership consists of 67 state, provincial and territorial securities administrators from the USA, the US Virgin Islands, Puerto Rico, Canada, and Mexico.

Next steps

If you want to take advantage of blockchain's huge potential and disruptive impact, while avoiding falling foul of ever-developing regulatory and legal requirements, visit our Hogan Lovells Engage Blockchain Toolkit.

Gregory Lisa
Washington D.C.
Evan Koster
New York


© 2020 Hogan Lovells. All rights reserved. "Hogan Lovells" or the “firm” refers to the international legal practice that comprises Hogan Lovells International LLP,Hogan Lovells US LLP and their affiliated businesses, each of which is a separate legal entity. Attorney advertising. Prior results do not guarantee a similar outcome.