These ICOs Have Not Been Subpoenaed By The SEC

After the Wall Street Journal reported that the SEC has issued “dozens of subpoenas and information requests” to executives of and advisors to various cryptocurrency projects, investors were left wondering which companies are being examined. ETHNews reached out to some of the largest projects to learn whether they are under investigation. Here is what we found.

  • On Wednesday, the Wall Street Journal  published a story contending that the US Securities and Exchange Commission (SEC) has issued a “wave of subpoenas” and requests for information to numerous companies involved in the cryptocurrency industry. While there has been a steady stream of enforcement actions from the agency over the last several months, the Journal’s article gave the impression that the SEC’s scrutiny has intensified in recent weeks.

    Over the last few days, ETHNews reached out to some of the most prominent blockchain and cryptocurrency companies that have conducted crowdfunding campaigns, also known as initial coin offerings (ICOs). Of the eight projects that we contacted, two – Brave and Bancor – said that they have not been subpoenaed by the SEC. The other six have not yet replied to our request for comment.

    The nature of the projects that replied could be instructive to other cryptocurrency companies and might shed some light on the SEC’s approach for anxious investors and cryptocurrency traders. It also might prod the SEC to examine additional companies – though that is not our intent.

    It should be noted that the silence from the other six companies is almost expected. If a project announces that it’s under investigation by the SEC, it wouldn’t be surprising to see the price of its token (or in the case of Overstock, its shares) slip.


    Brave is a web browser that aims to compensate users for viewing advertisements through its Basic Attention Token (BAT). The blockchain-based project has received great acclaim in large part because it is led by Brendan Eich, creator of the JavaScript programming language and co-founder of the Mozilla Project.

    When ETHNews asked whether the SEC has subpoenaed or otherwise contacted Brave, Eich said, “We have not received any communications from the SEC.”

    As explained on the BAT website, the Basic Attention Token can function as a “unit of account between advertisers, publishers, and users in a new, blockchain-based digital advertising and services platform.” Users would be rewarded with BATs for their attention, which they can later spend for “premium content” on the BAT browser. Publishers also receive BATs, ostensibly as part of their advertising revenue. It’s not totally clear how advertisers themselves acquire or spend tokens, but presumably, they would purchase BATs to submit their promotional materials to publishers.

    During its ICO in May 2017, Brave raised 156,250 Ether. At the time, that was equivalent to approximately $36 million, but at current prices, that Ether would be worth an estimated $134 million.

    The BAT Sale: Terms and Conditions clearly explain that the tokens are not meant to be a digital currency, security, or commodity, and note that tokens do not provide any ownership rights, rights to revenue, or rights to intellectual property. The FAQ section adds that the tokens are “not refundable” and essentially, they’re only useful within the BAT platform – but, maybe third-party developers will “come up with new and novel uses for the token.”

    For all intents and purposes, the Basic Attention Token appears to be a stand-in for dollars. Is there any reason that the advertising functionality and compensation scheme couldn’t work with a traditional “unit of account?” Perhaps, there are some automation or tracking features that rely on a blockchain, but it’s difficult to understand why a user would want to opt into this limited economy – maybe if BAT helped users pay for Netflix?

    For now, one of the greatest opportunities afforded by participation in the BAT economy is secondary market trading. At the time of writing, nearly 49 percent of BAT trading volume is taking place on Binance and Bittrex on the BAT/BTC trading pair. 

    However, the BAT website explains, “While we are aware that the token is currently being traded on the exchanges listed here, we have not encouraged or facilitated this exchange trading in any way. We have provided the foregoing information solely as a means of reducing the inquiries we receive directly.”

    The Returns

    Project backers who purchased tokens through the ICO on May 31, 2017, could purchase 6,400 BAT for every one ETH. According to CoinMarketCap, on May 31, 2017, one ETH was worth $231.58 at market open, which means that during the ICO, one BAT was worth approximately $0.036.

    Note: Calculations utilize the opening price of ETH on May 31, 2017, as listed by CoinMarketCap.

    With one ETH now trading for approximately $854, cryptocurrency enthusiasts who held onto their Ether from May 31, 2017, until now would have seen a nearly 269 percent return.

    By comparison, from May 31, 2017, until now, a BAT buyer would have enjoyed a 1033 percent return. There is an outstanding supply of 1 billion BATs, and the token is not mineable. 

    Note: Calculations utilize the approximate price of BAT on March 2, 2018.

    With this information and these figures in mind, it would appear that a speculative secondary market has arisen for BAT, which makes it intriguing that Brave has not been subpoenaed by the SEC.

    Perhaps the agency was satisfied by Brave’s terms and conditions, or maybe the SEC accepts the team’s assertion that BAT is a “utility token.” It might also be the case that the agency is trying not to stifle innovation, but taking the wait-and-see approach instead.


    Bancor is the second project that replied to ETHNews. Through a spokesperson, co-founder Galia Benartzi said that the company has not received any subpoena from the agency either. The Bancor team confirmed this via Twitter as well.

    As ETHNews previously reported, in June 2017, Bancor accumulated 396,720 Ether – then worth about $142 million. Now, that Ether could be worth almost $340 million.

    Bancor purports to allow users “to convert between any two tokens on our network, with no counterparty, at an automatically calculated price.” The team states that the “Bancor Formula constantly recalculates prices to maintain balance between Smart Tokens and their connectors.”

    However, shortly before the Bancor ICO began, Emin Gün Sirer, a professor of computer science at Cornell University and co-director of The Initiative for Cryptocurrency & Contracts (IC3), noted some potential vulnerabilities in the protocol’s design.

    A little over a week later, the professor published a scathing review of the project on Hacking Distributed. Some particularly juicy lines included: “Everything Bancor can do for you on chain, you can do by yourself off chain,” and “It is much better to manage the reserves manually than to commit to the Bancor strategy.” Bancor soon published a detailed, line-by-line defense against Sirer’s critiques.

    But, regardless of whether or not Bancor works or is useful for anything, a secondary market has arisen for the protocol’s accompanying token, BNT. At the time of writing, one BNT trades for approximately $5, with a majority of trading occurring on the Bancor Network itself on the BNT/ETH trading pair.

    Presently, the total supply of BNT is 74,654,694 units, down from the 79,323,978 BNT which were manufactured during the ICO. (It’s unclear why the supply has fallen by about 5 million units.)

    According to a Medium post by the Bancor team, during the ICO, there was a fixed price of 0.01 ETH per 1 BNT (or 100 BNT per 1 ETH). At approximate prices for June 2017, that would make one BNT equal to $3.70. In early January 2018, BNT reached a peak price of $10.27 before sliding back to a lower range. Now though, BNT trades for about 35 percent more than was paid during the Bancor ICO.

    Ultimately, it’s difficult to assess the usefulness of BNT, but the existence of a secondary trading market raises questions about the token. At the time of writing, the terms and conditions page on the Bancor website was inaccessible, so it’s hard to ascertain how the token was legally portrayed to project backers.

    The Takeaways

    The SEC’s approach to ICO regulation will require case-by-case examination. As has been noted by the vice president of the European Commission, regulation will demand analysis of the facts and circumstances of each project or cryptocurrency. While it’s nigh impossible to draw any specific conclusions from the absence of subpoenas to Brave and Bancor, recent reports about the SEC should serve as a reminder to investors that cryptocurrencies remain a speculative venture.

    However, as participants in this strange FinTech world, individual stakeholders can take advantage of the many communication avenues at their disposal. Ask project executives what tokens actually do. Find out what your cryptocurrencies entitle you to (or don’t). When unusual things happen, ask the hard questions. The abundance of contact information on developer websites and the availability of key executives on Slack channels should empower investors to get answers to basic questions. In the words of CFTC chairman J. Christopher Giancarlo, “#DYOR,” or “do your own research.”

    Earlier this month, SEC chairman Jay Clayton testified on cryptocurrencies alongside Giancarlo before the US Senate Banking Committee. It also came to light that the agencies recently provided guidance to their employees about rules and regulations for staff investments in cryptocurrencies, digital assets, and virtual currency-linked financial products.

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