Consensus 2018: Regulators Ready to Promote but Monitor Blockchain

“Lots of discretion goes into enforcement,” said Bunnell, now a partner and chair of the data security and privacy practice at law firm O’Melveny.

Dual Roles

Robert A. Cohen, chief of the SEC’s newly created Cyber Unit, said his agency’s role is to facilitate and regulate new ways of raising capital. “We don’t regulate the technology, we regulate the financial industry,” he said. “Whenever a new technology or way to raise capital [emerges], a fundamental part of the mission is to facilitate that.”

At the same time, the creation of the SEC’s Cyber Unit reflects the idea that the sector “is a high priority for the commission” at a time of shrinking budgets, Cohen said. That’s in large part due to what he called “a significant risk of fraud… as in any area with new and exciting technology and the opportunity to invest.”

The SEC will place an emphasis on fraud cases involving retail investors, Cohen added: “They handed over millions for digital assets, and that money’s at risk.”

U.S. agencies have considerable overlap when it comes to securities and commodities as well as civil and criminal prosecution.

Sujit Raman, associate deputy attorney general in the Department of Justice, says his agency coordinates with the CFTC and the SEC on criminal investigations. “When that line is crossed, we have very strong partnerships,” he said.

James McDonald, the CFTC’s director of enforcement, added that all agencies are working to maintain a dialogue with the companies they regulate. “We are working hard to create that kind of conversation,” he said. “It is incumbent on us as regulators, and the public expects us to coordinate our efforts.”

While Cohen said the SEC is taking a “thoughtful and deliberate approach” to determining whether utility and security tokens should be regulated as securities, McDonald cautioned that if investors can profit from the efforts of others, “that’s probably a security.”

‘That’s the World We Live In’

Kiran Raj, chief strategy officer at Bittrex, offered his own advice to companies navigating the space: “Get a lawyer.” Other blockchain leaders agree. Polymath CEO Trevor Koverko argued that blockchain financial models ultimately must fit within existing regulatory frameworks. “That’s the world we live in,” he said.