SEC Chairman Jay Clayton recently kicked off his opening remarks at the 45th Annual Securities Regulation Institute with a “simple and stern message” for initial coin offering (ICO) lawyers, accountants, underwriters and dealers: “they can do better.”
New York Times finance and technology writer Nathaniel Popper tweeted that the Chairman’s remarks were “a good slap to” to lawyers guilty of giving bad ICO advice.
The Chairman also made it clear that he expects these market professionals to “bring expertise, judgment, and a healthy dose of skepticism to their work.” Because they are relied on for their knowledge of the broad legal framework, the responsibility is great. Currently, for the Chairman, there is a lack of sound legal advice in this area.
Clayton went on to list troubling scenarios that securities lawyers may be a part of and then concluded with his directive.
“I have instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar.”
He also indicated that the SEC is going above and beyond to educate the public on the dangers of unregistered securities investments offered by unregistered promoters, with no securities lawyers or accountants involved.
Before moving on, the Chairman touched on Blockchain technology.
“The SEC is looking closely at the disclosures of public companies that shift their business models to capitalize on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering.”
In its own summary of the Chairman’s remarks, WilmerHale notes that later on in the program, Bill Hinman, Director of the Division of Corporation Finance, and Shelley Parratt, Deputy Director, acknowledged that they are focused on ICOs and Blockchain technology and that their staff will facilitate “thoughtful, compliant” use of related products and technologies.
Chairman Clayton then turned to the remaining Dodd-Frank mandates. Why are they unfinished? Because “if crafting these rules was straightforward, they would be done.”
The Chairman then outlined how he believes the Commission should approach the completion of the remaining rules, which fall into four categories: the security-based swap regime, executive compensation, specialized disclosure rules and mandates.
He also noted that due to factors beyond the Commission’s control that can steer where the “agency’s limited resources” are allocated, there will need to be flexibility in timing, sequence and content.
Chairman Clayton concluded his remarks by emphasizing the importance of securities lawyers and other market professionals in protecting American investors. Therefore, “the thorough provision of your services is essential to the operation of fair, orderly, and efficient U.S. markets.”