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David Drake

March 9, 2018 Article

SEC Suspensions: What Message Do they Send to the Crypto Market?

On Friday 16, 2018, the Securities and Exchange Commission (SEC) announced that it had halted trading activities of three companies - PDX Partners, Cherubim Investments and Victura Construction Group - for two weeks. The reason for this temporary suspension, according to SEC, is the claim that the companies had been purchasing digital currencies and other blockchain related assets.

According to
Pinnacle Brilliance CEO Roman Guelfi-Gibbs, the suspension should be viewed broadly as a bigger sign for the cryptocurrency market. It should allow all companies in the industry to conduct their own due diligence and self-regulation.

He says, "The SEC imposed a 2 week halt to trading of these companies with the likely intent to allow the market adequate time to perform their due diligence. The concern in this regard is to note that the SEC took action against a company because of cryptocurrency holdings. Ideally, we would like to police ourselves, and allow crypto to slowly integrate into financial regulations that make sense."

Compliance gap

Even so, there are industry players who feel that compliance gaps may have led to the temporary suspension of the three companies. By failing to provide the SEC with proper information about their acquisition of digital assets, the companies may have attracted its attention.

Andrew J. Hacker, founder of
Thought Blockchain, says, "The suspension of three equity based companies lately by the SEC is primarily due to their mismanagement and inability to provide shareholders and the SEC with proper information. Anytime you have wild swings in stock price that are unsupported by real substance, you are going to get the attention of the SEC."

According to Hacker, companies have the responsibility of providing proper details about their operations and strategies to shareholders including regulatory authorities.

"Just buying up unproven blockchain corporate assets or announcing an ICO shouldn't in and of itself be an indication of an increase in the value of that company. If management is not providing clear and proper information about their operations and corporate strategies, they are doing a disservice to their shareholders," he notes further.

Key lessons

On the other hand, SEC's move to halt company operations could be an indication that the regulator is discouraging companies from holding cryptocurrencies. Guelfi-Gibbs believes that the crypto market should be allowed to grow.

"With this situation, the SEC seems to signal that they are ready to lock down American companies just because they plan on holding crypto. Hopefully this move was just an isolated occurrence and not the beginning of a new policy," he says.

But Hacker is quick to note that companies operating in the cryptocurrency have a key role to play, "This isn't an issue about cryptocurrencies, it's an issue of management not being accurate and forthcoming with information about their operations and reporting to the SEC and the general public," he says.

The cryptocurrency industry is still in its nascent stage where everyone is learning how to handle investments in this promising technology and operations of publicly traded companies involved in the space. As the market grows, Hacker advises companies to critically review their operations and adhere to requirements on reporting and information provision.

"Companies should take a step back and really look at their operations, selling of stock and their marketing. Just because we are dealing with a great new technology doesn't mean that we should drop fundamentals about reporting and providing shareholders with the information they need to make a solid investment," he adds.

Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.

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