SEC Suspends Crypto-Related OTC Securities amidst Allegations of False Claims

The suspension comes as a result of claims that the group company made false statements about cryptocurrency, including that it was in partnership with an SEC-qualified custodian.

The statement, made by the agency during the move, cites a press release made by the Nevada-based company in August 2018. In the statement, the firm alleges that its crypto products would be available under the SEC’s regulations. The company further adds that its sale of tokens was registered under the requirements set by the SEC.

The Crack Down

The move comes after the SEC and CFTC (Commodities Futures Trading Commission) expressed concerns over companies making fraudulent claims about the two organizations. An investor alert was issued from the two agencies’ respective offices, the CFTC’s Office of Customer Outreach & Education and the SEC’s Office of Investor Education & Advocacy. The authorities warned about the use of their seals and advertisement of advanced knowledge of various markets. Additionally, the alert noted that officials from both agencies would never demand or suggest payments to endorse a service or product in any way.

Earlier in June this year, the SEC appointed Valerie Szczepanik as the senior advisor for the innovation of digital assets. In the new role, Valerie would coordinate efforts from various SEC divisions in the application of securities laws to developing digital assets, such as cryptocurrencies and ICOs. Ms. Valerie revealed that she would continue supporting the agency in facilitating capital formation, creating fair and efficient markets, and protecting the investors.

Going by federal law, the SEC has the power to suspend stock trading for ten days, or for as long as it takes to meet the requirements set. Speaking about the suspension, the SEC official Robert Cohen said that the agency doesn’t qualify or endorse cryptocurrency custodians, cautioning investors to stay vigilant while dealing with ICOs (Initial Coin Offerings).  Cohen is the SEC’s Chief of the Cyber Unit Enforcement Division.

False Claims

While many believe that volatility and hacking vulnerability are the main issues affecting cryptocurrency trading, false claims on behalf of the regulatory organization seem to be on the rise. Earlier this month, two men (Kim Hecroft and Morgan Hunt) were charged for forging documents and impersonating regulators in a bid to deceive the investors.

The defendants who were operating two businesses, known as First options trading and Diamond Trading Investment House, contacted and deceived clients into believing that funds couldn’t be withdrawn unless they paid tax to the CFTC. Hunt had an associate impersonate a CFTC officer during a phone call and subsequently forged documents with the official CFTC seal.

The OTC sector differs from other industries, as firms don’t need to disclose a lot of information like the ones listed on securities exchanges do. The SEC made a similar warning in 2014 regarding marijuana, after various marijuana-related OTC companies started making false claims in press releases.