Tech companies and advisors dealing in Initial Coin Offerings of cryptocurrencies have been served notices by the US markets regulator compelling their attendance at courts and asking them to offer up crucial transaction details, said a report by The Wall Street Journal (WSJ) citing sources.
The move comes soon after the regulator Securities and Exchange Commission’s warnings that many aspects involved in the selling of cryptocurrencies through Initial Coin Offerings or ICOs could be violating several securities laws.
Last month, the regulator had said it was going to increase scrutiny on companies looking to exploit increased stock value after announcement of new cryptocurrencies or investment in blockchain tech.
Many companies in the US and India have decided to raise money by selling cryptocurrencies through ICO, which is less regulated than the selling of shares through Initial Public Offering, and allows the promoter to retain all stake in the company, which may not be case with IPO.
Only last month, Mumbai-based AS Justride Tours and Travels Pvt. Ltd, which operates car and bike rental platform Drivezy, said it had raised $5 million (Rs 32.6 crore) in the first round of its ICO by selling RentalCoins in the US. "We have not raised money from India and all the money we have collected by selling cryptocurrencies (RentalCoins) will be changed into fiat currencies (issued by central banks) in the US via several currency exchanges," Drivezy’s chief executive, Ashwarya Pratap Singh, told VCCircle in a telephonic interview. Singh also said he took the US route as there are no guidelines for ICOs in India.
Ajeet Khurana, head of the Blockchain and Cryptocurrency Committee of India, said the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999, do not offer clarity on ICOs. "While one can say ICOs come under its purview or should follow the law, another can just simply say that the law is outdated as ICOs were not present when it was put in place," he explained.
An industry expert said companies are looking at ways to develop cryptocurrencies and put them in use without breaking rules in India. "Union finance minister Arun Jaitley has made it clear that the use of cryptocurrencies in India to buy products or services is illegal. However, many companies are taking a route similar to that opted by game companies which allow users to buy virtual coins and spend them in the game. This is quite legal and is in common use by Android game developers," he explained.
Meanwhile, Drivezy is expected to start its second round of ICO in the US soon. Other Indian companies taking the ICO route are WandX, Nucleus Vision, Bitindia and Cashaa.
However, the US regulator sending out notices may slow down ICO plans for now.
The US regulator has also suspended several activities of some companies citing unclear associations of these firms with crypto-assets.
Interestingly, several states in the US are looking to enact laws on cryptocurrencies to bypass the central regulator's control. The state of Wyoming, according to a report in the news portal Cointelegraph, is debating a law to exempt cryptocurrencies from property taxes.
Senate of another US state, Arizona, is debating whether it should allow citizens to pay state taxes and licence fees in cryptocurrencies.