The North American Securities Administrators Association (NASAA), the 67-member association of state-level regulators in Canada, Mexico, and the US, today released its annual enforcement report.
The report indicates that over the course of 2017, member organizations performed 4,790 investigations, resulting in over 1,985 years of criminal sentencing and $486 million ordered returned to investors.
While those numbers include actions that have nothing to do with crypto, it is that space that has proven to be the biggest growth area for regulators. In a section titled “Investor Threats Stemming From Emerging Financial Technologies,” the report’s authors claim that regulators found that the markets selling securities related to cryptocurrency and blockchain were “saturated with fraud.” They write:
“Regulators secured voluminous evidence proving many promoters were not complying with registration laws and were concealing important information from investors, including the significant risks associated with investing in the cryptocurrency market, the true identity of the promoters and managers of investment programs, the actual location of issuers’ business operations, and the premises for promises of lucrative profits and returns.”
The report connects fraud in the crypto market to NASAA’s finding that there has been an increase in the proportion of “unregistered” individuals being investigated. While the number of investigations of registered individuals or companies increased only 9 percent over the previous year, investigations of unregistered individuals and companies increased by 24 percent. The authors attribute this increase to the cryptocurrency and ICO space, operation in which is only in certain jurisdictions beginning to require any kind of licensing or legal registration.
Considering only the US, the increase is even more dramatic:
“For 2017, participating jurisdictions reported 515 unregistered individuals were the subjects of pending investigations. This number has climbed steadily in recent years, increasing nearly 40 percent between 2015 and 2017. In light of recent state enforcement efforts against fraudulent activity involving cryptocurrencies, it would not be surprising to see a sustained high level of investigations and actions against unregistered individuals and firms in the coming months.”
However, the organization’s next report may show a different picture in hindsight. The number of ICOs has dwindled over the course of the last year. Meanwhile, hedge funds, which are subject to registration requirements, are showing an increasing interest in cryptocurrency.