or is it marketing the ICO to the public at large? 8. Record-keeping – Is the ICO keeping detailed and easily auditable records of the funds being raised as well as information about the investors? As previously stated, none of these points are definitive but are meant to highlight some of the criteria the SEC uses when attempting to determine whether something qualifies as a security for regulatory purposes. SUBSTANCE OVER FORM Related to the Howey Test mentioned above, the SEC will thoroughly review tokens and ICOs brought to their attention and consider the substance of a token’s actual utility as opposed to simply what it’s called. Once again, transparency and disclosure are two of the critical components to helping an ICO “stay out of trouble.” CRACKDOWN ON SCAMS AND FRAUDULENT ICOS The SEC recognizes the unfortunate trend of significant fraudulent activity and poten-
tial for scam artists to hijack the ICO and blockchain space and will actively pursue these bad actors as part of their overall mission. CONCLUSION Although there weren’t necessarily any groundbreaking pronouncements made by the SEC at the Blockchain at Berkeley event, the information presented was very useful and it reinforced what many of us in the ICO advisory field have been saying all along: When planning your ICO, you ignore the SEC at your own risk. BONUS: DON’T TRY TO MASK A UTILITY-LESS TOKEN FOR WHAT IT’S NOT You think “they” will not figure it out; when the mouse is away, the cat will play. So, you packed your white paper with a list of utility purposes the token will have. Or better still, you spread out and disseminate different utility value across your white paper, mar-
I leave you with a simple but effective principle that will help you navigate the ICO regulatory grayish area, and Crypto in general: if it doesn’t feel good, it probably isn’t.
keting docs, website, etc. Let me be clear with you: “they” will find out. Always act as if everyone will know about what your doing, and when that happens, it will not be pretty. Crypto is a small community still, and what you don’t want is your name and reputation crushed under the weight of a lawsuit or worse yet, a government-led enforcement action. If the token does not have real utility, first thing first is to just acknowledge it. Then decide whether you want to pivot to a model where there’s some real and exclusive utility, or just use some of the avenues that are Government compliant (e.g. Reg. A+, Reg. D, Reg. S). Check out my previous article on the subject here. I leave you with a simple but effective principle that will help you navigate the ICO regulatory grayish area, and Crypto in general: if it doesn’t feel good, it probably isn’t.
Christian is a big believer in the power of decentralization, and the remarkable impact it can have on our lives. He’s a consultant, advisor, investor, connector, writer and speaker in Blockchain, ICOs and Cryptocurrencies. Fortunate enough to have lived the transition, he brings two decades of traditional business experience coupled with the new decentralized frontier. Find him on his blog or LinkedIn. All content created in this article does not represent advice nor is considered an official representation of the law or of the governing authorities. Use it at your own discretion.
Published on Dec 28, 2017