SEC Chairman Jay Clayton. (Photo: Diego Radzinschi/NLJ)

Securities and Exchange Commission Chairman Jay Clayton warned lawyers Monday that the agency’s staff is “on high alert” for approaches to initial coin offerings, or ICOs, that “may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar.”

Clayton told attendees at the Securities Regulation Institute that unregistered securities investments offered by unregistered promoters “with no securities lawyers or accountants on the scene, are, in a word, dangerous.”

However, he pointed to two examples of how attorneys’ handling of ICOs is lacking.

“Most disturbing,” Clayton said, is ICOs where “lawyers involved appear to be, on the one hand, assisting promoters in structuring offerings of products that have many of the key features of a securities offering, but call it an ‘ICO,’ which sounds pretty close to an ‘IPO,’” Clayton said.

On the other hand, he continued, “those lawyers claim the products are not securities, and the promoters proceed without compliance with the securities laws, which deprives investors of the substantive and procedural investor protection requirements of our securities laws.”

Then there are ICOs where lawyers “appear to have taken a step back from the key issues — including whether the ‘coin’ is a security and whether the offering qualifies for an exemption from registration — even in circumstances where registration would likely be warranted,” he said.

Lawyers in this instance, “appear to provide the ‘it depends’ equivocal advice, rather than counseling their clients that the product they are promoting likely is a security,” Clayton continued. “Their clients then proceed with the ICO without complying with the securities laws because those clients are willing to take the risk.”

– Check out SEC Halts Approvals of Cryptocurrency Funds on ThinkAdvisor.