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Bates Research  |  05-30-18

NASAA’s Crypto Crackdown, Signs Information-Sharing Agreement with CFTC

In a series of significant investigatory and enforcement actions, the North American Securities Administrators Association (NASAA) engaged in a coordinated effort to crackdown on fraudulent cryptocurrency related investment products. NASAA, whose members represent state, provincial, and territorial securities regulators in the United States, Canada and Mexico, launched “Operation Cryptosweep” in an attempt to gain information about fraudulent Initial Coin Offerings (ICOs) and to identify the individuals and companies behind the plethora of cryptocurrency related investment products. In another important enforcement development, NASAA entered into a cooperation agreement with the Commodity Futures Trading Commission (CFTC) to share information that could be the basis of enforcement actions under federal or state law.

NASAA Casts a Wide Net

With the launch of Operation Cryptosweep, NASAA took significant steps toward a more public and assertive role in the debate over the emerging regulatory framework for cryptocurrency. Previously, NASAA members conducted public outreach initiatives to warn investors in their jurisdictions of the risks associated with ICOs and cryptocurrencies. In addition, member jurisdictions engaged in a dozen enforcement actions regarding these types of products.

Operation Cryptosweep leapfrogs that approach as it involved a highly coordinated strategic effort by NASAA members from more than 40 jurisdictions throughout the United States and Canada. The initiative included nearly 70 inquiries and investigations and has so far resulted in 35 pending or completed enforcement actions since early May. (See here for a list and the status of current investigations.) To date, NASAA investigators found about 30,000 crypto-related domain name registrations executed in the past two years. That scale suggests the vast potential of activity. NASAA President Joseph P. Borg concluded that there is a “persistently expanding exploitation of the crypto ecosystem by fraudsters [which] is a significant threat to Main Street investors in the United States and Canada.” President Borg referred to the NASAA initiative as “just the tip of the iceberg” in countering this threat.

Federal Regulators were quick to praise the multi-state jurisdictional effort, including SEC Chairman Jay Clayton, who stated: “The enforcement actions being announced by NASAA should be a strong warning to would-be fraudsters in this space that many sets of eyes are watching, and that regulators are coordinating on an international level to take strong actions to deter and stop fraud.”

CFTC Chairman J. Christopher Giancarlo went further in praising the NASAA initiatives by reaffirming the joint jurisdictional responsibility of federal and state regulators. He said: “we accept regulatory overlap between state and federal authority for fraud and misconduct that preys on the significant public attention that surrounds virtual currency. It is critical to have as many cops on the beat when it comes to pursuing bad actors that harm our consumers in what is otherwise a promising area of innovation.”

NASAA and the CFTC Agree to Share Information

On the same day as NASAA announced the results of Operation Crytosweep, President Borg joined CFTC Chairman Giancarlo to announce the signing of a Memorandum of Understanding (MOU) between NASAA and the CFTC. The confidential information sharing agreement creates a framework for cooperation between the state and federal regulators and could have an impact on enforcement actions under both state and federal law. President Borg noted that “NASAA members are unique among all federal and state regulators in that they can bring enforcement actions for both securities law and commodities law violations.” He also stated that “individual jurisdictions will be required to sign the MOU in order receive its benefits, including investigative leads from the CFTC’s Office of the Whistleblower or other tips, complaints and referrals the CFTC offers to provide to NASAA members.” CFTC Chairman Giancarlo concurred explaining that: “information-sharing is key to cooperative enforcement operations, and by working together, we can ensure that the rapidly evolving financial technology space has the appropriate oversight to pursue bad actors, protect market participants, and allow for market-enhancing innovation.”


Taken together, NASAA’s coordinated moves demonstrate a clear intention to assert state interests in the debate over the future regulatory framework for cryptocurrency investor protection. (See here for a Bates’ discussion on some of the jurisdictional issues raised among federal regulators and recent statements calling for more collaboration.) The positive responses by federal regulators to NASAA’s Operation Cryptosweep, and the information sharing agreement between NASAA and the CFTC, reflect a willingness by federal regulators to enhance and combine enforcement tools to combat cyber fraud. The welcome reception to these moves also reflects the political skill of NASAA’s leadership. Bates will continue to highlight regulatory developments.