Bitcoin craze fuels more SEC oversight

The SEC intends to develop regulatory oversight over cryptocurrencies as the number of coin offerings and volume of capital being raised explode, a member of the agency said.

Shamoil Shipchandler, regional director of the SEC’s Fort Worth Regional Office, likened bitcoin initial coin offerings to a dressed-up form of an unregistered securities offering.

“If you take them and you boil it down to their component parts, they really look like securities and we intend to regulate them,” Shipchandler told attendees of Buyouts  Insider’s PartnerConnect SouthWest Conference in Austin.

“You can call them tokens, you can call them coins, but all of these are somewhat misleading terms because you don’t get a token, you don’t get a coin,” he said. “You get a lot of people not knowing exactly what they’re getting into.”

While bitcoin has already seen interest from high-net-worth individuals, family offices and early-stage venture capitalists, the buzz has yet to appeal to the traditional private equity community. As Shipchandler reiterated in Tuesday’s keynote, the level of activity in these assets warrants further SEC oversight.

The biggest problem with cryptocurrency transactions from a regulatory standpoint is the anonymity, the SEC official said. There’s concern about who’s engaging in these types of transactions and the associated lack of security.

“We’re used to being able to look at either end of a transaction and determine what actually occurred,” Shipchandler said.

Celebrity endorsements are also troublesome, he said, when you don’t know how familiar the celebrity is with this asset class.

“People will gravitate towards these because they’ve got the veneer of legitimacy, right, without the underpinnings of legitimacy,” he said.

The comments align with a statement the SEC issued in early November, when the agency warned investors not to base investment decisions solely on celebrity endorsements. Shipchandler hinted that the recent notice reflects an initial step when it comes to SEC regulation of cryptocurrencies.

“We’re not talking about removing all the risk,” he said, “but it’s got to be risk that people understand. It’s got to be risk that’s fully exposed to them.”

Correction: A previous version of this story misquoted Shamoil Shipchandler. The story has been updated.

Action Item: The SEC’s warning on investment decisions driven by celebrity endorsements:

SEC official Shamoil Shipchandler speaks at PartnerConnect Southwest Dec. 6, 2017. Photo by Alastair Goldfisher, VCJ