US Supreme Court Restricts Power of SEC to Seek Penalties Against ICOs

Initial coin offerings (ICOs) indicted by the U.S. Securities and Exchange Commission (SEC) may see a significant reduction in fines owed following a recent Supreme Court ruling.

Apex Court Caps SEC Disgorgement Ability

According to Bloomberg, the U.S. Supreme Court issued a ruling on Monday (June 22, 2020), placing a cap on the disgorgement sought by the SEC in fraud cases. As part of the court’s decision which came by way of an 8-to-1 majority, the Commission can no longer seek disgorgement above the net profits of the indicted party.

Apart from restricting disgorgement to the net profits, Justice Sonia Sotomayor writing for the apex court declared that the funds recouped by the Commission must be geared towards restitution of affected investors. For situations where such transfers to investors is not possible, the Supreme Court recommended that the funds be sent to the Treasury.

For the SEC, the Supreme Court’s decision is a win for the Commission despite the reduction in its disgorgement powers. Some pundits say the ruling is preferable to the total eradication of the SEC’s ability to seek such fines and penalties.

The Supreme Court’s ruling could impact some crypto projects in the U.S. that already have pending cases or are currently under SEC investigation. Since 2017, the Commission has been going after ICOs describing them as unlicensed security token sales.

Commission Unrelenting in ICO Enforcement Efforts

The botched Telegram token sale event is perhaps one of the biggest victories for the SEC in its ICO enforcement activities. Despite carrying out one of the highest-earning ICOs, Telegram has been unable to move forward with its planned TON blockchain launch.

As reported by CryptoPotato on several occasions, the SEC has brought charges against several 2017-era ICOs. Even celebrities and other public figures have not escaped the SEC ICO enforcement net with the likes of Grammy Award-winning music producer DJ Khaled and boxing champion Floyd Mayweather getting into trouble with the Commission.

The SEC’s characterization of ICO tokens as securities might change if Congress passes the Token Taxonomy Act. This piece of legislation seeks to protect cryptos from securities laws while establishing a ‘de minimis’ tax exemption for profits on cryptocurrency trading below a certain limit.

The Cryptocurrency Act of 2020, another crypto-related bill before Congress aims to provide a framework for classifying digital assets while delineating the responsibilities of Federal regulatory agencies regarding cryptocurrencies.