The US Securities and Exchange Commission (SEC) has confirmed plans to examine companies that rebrand or tweak their business models in order to jump on the blockchain bandwagon - and provide a boost to their company's stock prices.
According to Reuters, SEC Jay Clayton announced on Monday that the agency will scrutinise public companies that make public announcements of blockchain initiatives or change their names to capitalise on the popularity of blockchain technology.
Recently, both the Long Island Tea Company and Kodak have enjoyed big share-price rises as a result of unexpected announcements of blockchain-related activities. Long Island Tea Company even announced plans to change its name to Long Blockchain - although added that it would still continue to make tea.
The SEC is looking closely at the disclosures of public companies that shift their business models to capitalise on the perceived promise of distributed ledger technology
However, the SEC isn't impressed with such initiatives. In December, the financial regulator clamped down on a small firm called Crypto Company after it agreed to acquire a cryptocurrency platform.
After inking a deal to invest in the platform, the company's shares grew by 2,700 per cent. The SEC thought this was unethical and temporarily suspended the firm's trading rights.
Speaking this week, Clayton said companies shouldn't enter the blockchain space and change their names just to increase share prices.
Lawyers are offering companies inadequate advice on initial coin offerings and cryptocurrencies
"The SEC is looking closely at the disclosures of public companies that shift their business models to capitalise on the perceived promise of distributed ledger technology and whether the disclosures comply with the securities laws, particularly in the case of an offering," he said.
He claimed that there is evidence lawyers are offering companies inadequate advice on initial coin offerings (ICOs) and cryptocurrencies, which can lead to fraudulent activity.
The chairman said it's "disturbing" that they're helping companies escape federal laws and regulations to make quick money from blockchain and bitcoin. He warned firms to avoid such law firms.
"I have instructed SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the US securities bar," he said.
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