LAST_UPDATESun, 22 Jul 2018 8pm

Virtual Chaos

Pic: ReutersPic: ReutersU.S. regulatory arbitrage is moving into cyberspace. The Securities and Exchange Commission on Monday took its first action against an initial coin offering – just days after the Commodity Futures Trading Commission gave the green light for Chicago exchanges CME Group and the CBOE to trade bitcoin futures. The growing regulatory discord on virtual currencies increases the risks to investors.

Quebec-based PlexCorps launched an ICO, the digital-currency version of an initial public offering, this summer despite being banned by the province’s financial-markets tribunal from securities-related activities. As recently as Dec. 1, a PlexCorps Facebook page touted the digital token of its “decentralized visionary team” as the day’s fastest-appreciating digital coin on

The SEC alleged the company raised $15 million by selling 81 million PlexCoin tokens, claiming investors could make returns of up to 1,354 percent. The agency said the company falsely claimed to have a global team of experts, did not disclose that backer Dominic Lacroix had pleaded guilty to previous securities-law violations, and sought to misappropriate some of the proceeds for personal use or by diversion to digital wallets. On Monday, PlexCoin was quoted by as the sixth biggest loser of the past 24 hours, down 47 percent.

The charges are the first brought by the agency’s cyber unit, set up in September, in a year when crypto-currencies have skyrocketed. Bitcoin has risen more than 1,000 percent since the start of January. ICOs, virtually unheard of 12 months ago, have raised nearly $3.5 billion this year and expanded the digital universe to more than 1,300 tokens.

The opportunity for fraud has risen commensurately. So far the two big U.S. market regulators have taken a case-by-case approach. In July the SEC ruled that tokens sold by a group called the DAO was an offering of securities and subject to registration requirements. The CFTC, which regards them as commodities, has been more accepting.

The good-cop, bad-cop regulatory approach that allowed innovation to flourish has outlived its usefulness and is creating confusion in a crypto-currency market now worth some $340 billion. Without more comprehensive rules and closer coordination, the SEC and CFTC are giving bad actors room to exploit gullible investors.