The SEC's Recent Rulings Are More About Exchanges Than ICOs

Last week the SEC reached settlements with AirFox and Paragon in its first cases brought purely for lack of registration, rather than for fraudulent activity.

What is "Over" is the vapid hype of token structures that don't make sense, fund-raisings based on no business plan and ICOs that followed the "Me too" model.

Earlier this month, an SEC director revealed that the agency plans to release "Plain English" guidance for when a token is and is not a security.

What seems to have been largely overlooked is that the statement also shines the spotlight on crypto exchanges.

Last week, the SEC announced a settlement with the founder of EtherDelta, a "Decentralized exchange" for ethereum-based tokens, who had been accused of knowingly breaking securities laws by neither registering the platform with the SEC nor operating under an exemption.

In its statement, the SEC outlines what exactly is considered an "Exchange," and under what circumstances a token trading venue would be required to register - basically, in all circumstances in which tokens change hands on a platform.

Remember the report by the New York State Office of the Attorney General on crypto exchanges from a couple of months ago? It gave a hint at what was to come: In the introduction it specifies "Virtual asset trading platforms now in operation have not registered under state or federal securities or commodities laws." Now, the SEC and the OAG are two very different regulators, with different remits and methods.

The OAG's report goes on to point out that digital asset platforms present an additional risk to the investor - token buyers and sellers can deal directly with them, whereas traditional exchanges operate with the public via the additional buffer of broker-dealers.

An important detail is that the SEC has not yet prosecuted an exchange - EtherDelta was not the subject of the settlement, its founder was, and he sold the business in December of last year.

While market attention seems to be focused on the ICO cull stemming from the now inevitable cost of security registration - and while it is a huge pity that so many investors will end up losing money on already-issued tokens that disappear as a result - its market impact is more dramatic than meaningful.