Major blockage in the road to mass adoption of cryptocurrencies has been the uncertainty of whether these digital assets are securities or not. According to the regulators, securities are tradable financial instruments issued by governments or companies.
Just because cryptocurrencies are decentralized in nature, they can’t be classified as securities despite the fact that they are tradable assets. Since many cryptocurrencies are created by private companies, it sparks the debate about which of these cryptocurrencies could be considered a security.
If an asset is classified as a security, it means that it must register with the SEC. While the SEC has been enigmatic about deciding which crypto assets are securities, it made it quite clear that Bitcoin and Ethereum are not securities taking into matter their largely decentralized nature.
Improper legal advice leads to $200,000 penalty
The same uncertainty has now led Cryptocurrency fund manager Digital Capital Management to sue law firm Faegre Baker Daniels for providing wrong information about securities to its client.
As per a lawsuit filed on Tuesday, reported by Bloomberg Law, Digital Capital Management has claimed that Faegre Baker has provided “inaccurate analysis and advice” to its predecessor, Crypto Asset Management, regarding how to register under the Investment Advisers Act.
Back in September 2018, the SEC charged Chicago based frim Crypto Asset Management, for violating registration requirements. The SEC had then said that the defaulter and its principal Timothy Enneking, had raised over $3.6 million in 2017 and even claimed that the firm was “the first regulated crypto asset fund” in the U.S.
The defaulters had agreed upon a penalty of $200,000 and a cease-and-desist order.
The plaintiffs in the current lawsuit state that the legal advice received from the law firm in 2017 was “erroneous” and “inaccurate.” The law firm had advised the plaintiffs that “Crypto Assets are not securities” and hence this resulted in an investigation from the SEC.
The plaintiffs have now asked Faegre Baker Daniels to compensate for damages that include fees and costs incurred, reputational harm, lost profits and other consequential damages, estimated at USD 75,000.
‘Security or Not Security’ continues to slow down industrial growth
The job of determining the likelihood of a cryptocurrency being a security or not has become quite a controversial topic. The regulatory uncertainty has been hindering the growth of the crypto industry and the SEC has become quite the important regulator in all things crypto.
The SEC continues to crackdown on crypto businesses and this caused many of these projects to end before it even began. It is however evident that with the growing popularity of cryptocurrencies, at some point the SEC ought to take a decision. Proper SEC regulation could clean up the crypto space and even make ICOs a viable investment option.