DECEMBER 2017
The Latest From the SEC Regarding ICOs On November 30, 2017, I had the great pleasure of participating in a panel discussion with representatives from the U.S. Securities & Exchange Commission at an event sponsored by Blockchain at Berkeley (https://blockchain.berkeley. edu/). This was the first time that the SEC has ever agreed to participate in a public cryptocurrency event, so I thought it was important to share a quick rundown of some of my takeaways from the discussion. THE SEC RECOGNIZES THAT AN ICO CAN PROVIDE A FAIR AND LAWFUL WAY TO INVEST. Given all the fear and uncertainty surrounding how the SEC eventually intends to address the ICO funding model, it was refreshing to know that they by acknowledge the fact that ICOs can be CHRISTIAN FERRI a completely legitimate (and useful) means of raising capital for legitimate blockchain-based projects. THERE IS NO SURE-FIRE WAY TO DETERMINE WHETHER A TOKEN WILL BE DEEMED A SECURITY Consistent with the opinion of most analysts on the subject (including my 16
own), the representatives from the SEC who participated on the panel confirmed that there is no simple bright line rule that can be followed to determine whether a token is a security for the purposes of U.S. securities laws and regulations. Instead, each token will be reviewed on a case-by-case basis following the Howey Test and other applicable rules and guidelines (see my article on the subject here) THE SEC PROVIDED SOME GENERAL GUIDANCE TO HELP WITH THE SECURITY ANALYSIS Although repeating the fact that every token will be analyzed on a case-by-case basis, the SEC representatives did share some general pointers on what they would be looking for, including: 1. Transparency – Do investors have access to all the relevant information about the token and the project?
They acknowledge the fact that ICOs can be a completely legitimate (and useful) means of raising capital for legitimate blockchain-based projects.
2. Disclosure – Related to transparency, is the ICO actively communicating all relevant and important information about the token and the project to prospective investors? 3. Communication – Has the ICO actively reached out to the SEC for guidance on their ICO and any related projects? 4. Registration – Has the ICO registered its trading platform with the SEC? 5. Segregation – Are the assets of the customers kept separate from the company accounts? 6. Investor Sophistication – Is the ICO only raising funds from accredited/ sophisticated investors or the public at large? 7. Marketing – Is the ICO privately communicating with accredited/sophisticated investors to raise funds