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The SEC Just Ruled That Ethereum ICO Tokens Are Securities

posted by martyb on Friday July 28 2017, @04:58AM   
from the to-flip-a-coin dept.

Fnord666 writes:

On Tuesday, the SEC announced that tokens that are sold off in crowdfunding events known as Initial Coin Offerings (or ICOs) in ethereum may be considered securities in some circumstances, and are therefore subject to US securities law. Tokens are digital assets that investors may purchase during ICOs, and they usually have some sort of bespoke functionality—in some cases, voting rights or profit dividends—in the app the investor is buying into.

[...] As for which tokens constitute securities, the SEC concluded that the tokens people bought in 2016 to participate in the DAO—a crowd-directed investment fund that imploded after being hacked that same year—were securities. The SEC notes in its report on the DAO that token-holders purchased the tokens with the expectation of profit "derived from the managerial efforts of others," which qualified them as securities.

Since the people behind the DAO didn't register its token sale with the SEC, it was technically illegal, but the commission stated that it has decided not to bring charges against them.

Going forward, according to the SEC, companies that are issuing tokens as part of an ICO (if they are considered securities) need to register with the commission. This will force companies to comply with regulations that ask them to reveal their financial position and the identities of their management. The SEC also concluded that online exchanges where tokens are bought and traded may have to register as security exchanges.

[...] Needless to say, things are about to get very interesting on the lawless digital frontier.

Source: vice.com

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Original Submission

• "It's a security.. "It's a security.. (Score: 3, Insightful) by MostCynical on Friday July 28 2017, @05:41AM (1 child)

  by MostCynical (2589) on Friday July 28 2017, @05:41AM (#545621) Journal

  so you have to abide by our rules"

  How very Lewis Carroll.

  'Humpty Dumpty smiled contemptuously. ... "When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean- neither more nor less."'

  --
  "I guess once you start doubting, there's no end to it." -Batou, Ghost in the Shell: Stand Alone Complex

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• Re:"It's a security.. (Score: 4, Informative) by tonyPick on Friday July 28 2017, @07:10AM

  by tonyPick (1237) on Friday July 28 2017, @07:10AM (#545642) Homepage Journal

  Actually it's a security because, to quote the report...."Investors in The DAO Invested Money With a Reasonable Expectation of Profits Derived from the Managerial Efforts of Others", which is pretty much one of the textbook definitions of a tradable financial asset, and

  ...the Exchange Act makes it unlawful for any broker, dealer, or exchange, directly or indirectly, to effect any transaction in a security, or to report any such transaction, in interstate commerce, unless the exchange is registered as a national securities exchange under Section 6 of the Exchange Act, or is exempted from such registration.
  ...
  the Platforms provided users with an electronic system that matched orders from multiple parties to buy and sell DAO Tokens for execution based on non-discretionary methods.

  It turns out "but it's on a computer, and there's cryptography. Woooooo cryptography" is not a valid exemption for your Dunning-Krugerrands.

  The idea that the attempt to create a tradeable financial asset might fall under the law governing tradeable financial assets, and be noticed by the people who have the job of regulating tradeable financial assets, should really not have been a surprise to anyone. The notion that this is some kind of government overreach wanders off into plain old deluded, especially since the SEC appears to have (rather generously) let them off with a warning on the grounds of cluelessness.

  Parent