PANews reported on August 9 that according to DL News, sources familiar with the SEC investigation revealed that the SEC has issued subpoenas to at least three cryptocurrency venture capital companies this year. The first page of the subpoena seen by DL News is titled "Questions Regarding Certain Crypto Asset Intermediaries". The page reads: "SEC staff is investigating the above matters to determine whether there are any violations of federal securities laws." DL News viewed the subpoena without being able to disclose the target of the SEC investigation.
The SEC’s investigation into crypto ventures suggests the agency is now looking at the starting point of the crypto capital pipeline — the investors from whom the vast majority of crypto startups receive their initial funding. The person, who declined to be named to avoid restrictions on publicly commenting on the matter, said at least two other crypto ventures have received essentially the same document requests. The source also said the subpoenas sent to the crypto ventures requested contracts for any token transactions in which the investors participated. “This is an overly broad and expensive search,” said an attorney for a crypto venture that was not affected by the subpoenas. The attorney had heard about the investigation before speaking to DL News and asked not to be named publicly. Elisha Kobre, an attorney at Bradley Arant Boult Cummings who focuses on securities and commodities fraud, said the SEC’s scrutiny of venture capital is reasonable. “It’s natural that the SEC might consider this as an additional area of enforcement,” he said.
Sources familiar with the investigation said the financial regulator may be interested in whether cryptocurrency venture capital firms are "legal underwriters." Legal underwriters are broker-dealers that purchase securities with the intent to distribute them to the public. Many cryptocurrency startups file token financing records with the SEC. However, startups typically apply to the agency for exemptions from registering their securities because they are only offering rights to future tokens to accredited investors. Therefore, the SEC is interested in whether these accredited investors are issuing unregistered securities on behalf of token issuers to the broader retail market, the source said. "That would poison the initial offering," the person added, referring to what happens when investors allegedly sell tokens into the open market.
