SEC: Exercise Caution with Crypto Asset Securities
The SEC's assault on crypto continued on Thursday with the agency issuing an alert urging those investing in the space to exercise caution.
❗ Why It Matters
The news comes one day after Coinbase was issued a Wells Notice, indicating the agency may soon take action against the exchange. This time, the SEC is warning investors about "crypto asset entities and platforms not complying with applicable law, including federal securities laws."
- The SEC criticizes "Proof of Reserves," which is a method some exchanges, such as Binance, have used to proof solvency in the wake of FTX's collapse. The SEC says that Proof of Reserves "may not provide any meaningful assurance that these entities hold adequate assets to back their customers' balances," and cautions that these services do not provide a complete picture and shouldn't be used in lieu of audited financial statements.
- Crypto investors also may not benefit from the protections that are applicable to registered broker-dealers, exchanges, or investment advisers.
- The alert also characterizes investments in "crypto asset securities" as exceptionally risky and volatile.
- Finally, the bulletin notes that "fraudsters continue to exploit the rising popularity of crypto assets to lure retail investors into scams, often leading to devastating losses." This comes one day after it was announced that a handful of celebrities (including Jake Paul and Lindsay Lohan) were being sued by the agency for illegal promotion of cryptocurrencies (specifically Tron in this case).
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