Earlier this week, we wrote about the strong SEC statements and a wave of SEC subpoenas directed at companies making unregistered initial coin offerings (“ICOs), but cryptocurrency issuers also need to pay attention to state regulators. This week, Massachusetts’s top securities regulator, the Massachusetts Securities Division, entered Consent Orders to stop the sale of “unregistered or non-exempt securities” by five Massachusetts companies that were planning ICOs. State regulators alleged that four issuers and the principal of an issuer violated Massachusetts securities laws. Each consented to the Orders without admitting or denying the violations. Four of the Consent Orders required the issuers to offer rescission to any investors that purchased coins from the offering.

In a statement cautioning investors, Massachusetts Secretary of State William Galvin said, “An offering done to avoid registration with regulators should be seen as a red flag[.]” Galvin said the Consent Orders were part of an “aggressive sweep” to regulate cryptocurrencies. In January, Massachusetts filed its first complaint regarding an unregistered initial coin offering against a real estate company called Caviar and its majority partner. The Massachusetts enforcement actions should come as no surprise to those who have been paying attention to the statements coming from Secretary Galvin. Back in December, in an interview with CNBC, he warned that bitcoin “doesn’t pass the smell test” and is “entirely speculation.”

These Massachusetts enforcement actions serve as a reminder that, in addition to SEC regulation, cryptocurrency issuers need to be aware of state securities regulations and be prepared for state-level enforcement. It is likely that regulators in certain states will continue to focus on the growing ICO industry.

Nelson Mullins can help companies and investors navigate the evolving ICO, cryptocurrency, and blockchain regulatory environment. The White Collar Defense and Government Investigations Group has extensive experience responding to SEC subpoenas and other government investigations. The firm’s Blockchain and Digital Currency Group and Securities and Enforcement Practice are also available to advise ICO issuers, cryptocurrency investors, and institutional investors on how to comply with SEC and other governmental agency registration requirements and regulations.