Photographer: Michael Nagle/Bloomberg

Widespread Fraud in ICOs and Penny Stocks Shocked SEC’s Jay Clayton

  • SEC chairman comments of first-year lessons in Chicago speech
  • Agency to weigh effectivness of regulatory approaches, he says

The former Wall Street deals lawyer who leads the U.S. Securities and Exchange Commission said one of the biggest surprises of his first year heading the agency has been learning about the levels of fraud surrounding initial coin offerings and penny stocks.

“The fraudsters flocked to the new and attractive space. I guess that shouldn’t surprise me, but it does -- and the amount of fraud that exists and has existed in the penny-stock space,” SEC Chairman Jay Clayton said Tuesday at a conference in Chicago. “Both of these issues trouble me.”

Jay Clayton

Photographer: Andrew Harrer/Bloomberg

Clayton’s pointed remarks at an equity markets symposium sponsored by the University of Chicago Booth School of Business and the Security Traders Association were the latest in a series of critical statements on the topic since he joined the SEC last May. They came in the context of discussing how his agency should protect the investing public.

“I believe we must continue to explore whether our regulatory approaches appropriately protect retail investors,” he said.

Hundreds of startups have sold digital tokens that appear to be stand-ins for securities, but aren’t currently regulated as such. Clayton has made clear that many of these token sales are initial public offerings in all but their name. As for penny stocks, many of these tiny companies have been used to deceive investors.

(Corrects name of STA in third paragraph.)
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