The nature of initial coin offerings (ICOs) makes it harder to catch fraudsters compared to penny-stock scams, the chairman of the Securities and Exchange Commission (SEC) told a Congressional committee today.

Jay Clayton appeared before the House Financial Services Committee during a session dedicated to the SEC. The event covered a range of topics, including a hack of the ageny’s corporate filing system, EDGAR, last year.

Yet just after the recess, Congressman Ed Perlmutter (D-CO) asked about Clayton’s position on ICOs, remarking that “it reminds me of the old days with these penny stocks.”

Clayton – who said last week that he is “concerned” about the risk of the funding use case being used to facilitate pump-and-dump frauds – echoed those comments, stating that he believes his agency is up to the task of policing token sales.

He told the committee:

“I’m cautiously optimistic about the division’s enforcement of this. They know this is a ripe area for pump-and-dump. Pump-and-dump – it’s actually easier here than it is in the penny stock area, because it’s all electronic, it’s all anonymous, [and] it’s harder to catch the bad guys at the end of the day.”

The SEC chair also suggested that the prevalence of potential fraud could hamper wider adoption of the tech in capital markets. Outside of the ICO use case – through which startups or other parties can issue cryptographic tokens in an effort to fund or bootstrap a new blockchain network – market operators have looked at the tech as potential replacements for existing trading and post-settlement systems.

But according to Clayton, that work could be impaired – particularly in the absence of wider education on the risks involved with ICOs.

“It’s going to be a lot harder to get the benefits of this kind of technology, technological advancement,” said Clayton.

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