By: Andrew Elbaz and Student-at-Law, Alexander Katznelson

On March 7, 2018 the SEC issued a public statement – “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets”.

The statement notes that there are a number of cryptocurrency exchange platforms that offer investors the ability to buy and sell digital assets which meet the definition of “security” under securities laws. Any platform that operates as an exchange and enables investors to trade digital assets that are considered securities must register with the SEC or operate under an exemption from registration.

The SEC reminds investors that to benefit from SEC oversight investors should be cautious to only use cryptocurrency exchange platforms registered with the SEC or operating under an exemption. It provides the following list for investors to consider prior to trading on a cryptocurrency exchange platform:

• Do you trade securities on this platform?  If so, is the platform registered as a national securities exchange?
• Does the platform operate as an ATS [alternative trading system]?  If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC? 
• Is there information in FINRA's BrokerCheck about any individuals or firms operating the platform?
• How does the platform select digital assets for trading? 
• Who can trade on the platform?
• What are the trading protocols?
• How are prices set on the platform?
• Are platform users treated equally? 
• What are the platform's fees?
• How does the platform safeguard users' trading and personally identifying information? 
• What are the platform's protections against cybersecurity threats, such as hacking or intrusions?
• What other services does the platform provide?  Is the platform registered with the SEC for these services?
• Does the platform hold users' assets?  If so, how are these assets safeguarded?

The statement goes on to warn organizations operating as an “exchange”, as defined in securities laws, and organizations that offer services for digital assets classified as securities, that they must comply with all registration requirements under securities laws.

The SEC is continuing to monitor cryptocurrency exchange platforms and their compliance with securities laws. 

A copy of the SEC statement can be viewed at the following link: https://www.sec.gov/news/public-statement/enforcement-tm-statement-potentially-unlawful-online-platforms-trading