The US Securities and Exchange Commission issued an investigative report yesterday cautioning market participants that offers and sales of digital assets by “virtual” organizations are subject to the requirements of the federal securities laws.
Such offers and sales, conducted by organizations using distributed ledger or Blockchain technology, have been referred to, among other things, as “Initial Coin Offerings” or “Token Sales.” Whether a particular investment transaction involves the offer or sale of a security – regardless of the terminology or technology used – will depend on the facts and circumstances, including the economic realities of the transaction.
The SEC’s Report of Investigation found that tokens offered and sold by a “virtual” organization known as “The DAO” were securities and therefore subject to the federal securities laws.
The Report confirms that issuers of distributed ledger or Blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies. Those participating in unregistered offerings also may be liable for violations of the securities laws.
Additionally, securities exchanges providing for trading in these securities must register unless they are exempt. The purpose of the registration provisions of the federal securities laws is to ensure that investors are sold investments that include all the proper disclosures and are subject to regulatory scrutiny for investors’ protection.
“The SEC is studying the effects of distributed ledger and other innovative technologies and encourages market participants to engage with us,” said SEC Chairman Jay Clayton. “We seek to foster innovative and beneficial ways to raise capital, while ensuring – first and foremost – that investors and our markets are protected.”
“Investors need the essential facts behind any investment opportunity so they can make fully informed decisions, and today’s Report confirms that sponsors of offerings conducted through the use of distributed ledger or Blockchain technology must comply with the securities laws,” said William Hinman, Director of the Division of Corporation Finance.
The SEC’s Report stems from an inquiry that the agency’s Enforcement Division launched into whether The DAO and associated entities and individuals violated federal securities laws with unregistered offers and sales of DAO Tokens in exchange for “Ether,” a virtual currency.
The DAO has been described as a “crowdfunding contract” but it would not have met the requirements of the Regulation Crowdfunding exemption because, among other things, it was not a broker-dealer or a funding portal registered with the SEC and the Financial Industry Regulatory Authority.
“The innovative technology behind these virtual transactions does not exempt securities offerings and trading platforms from the regulatory framework designed to protect investors and the integrity of the markets,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.
Steven Peikin, Co-Director of the Enforcement Division added:
“As the evolution of technology continues to influence how businesses operate and raise capital, market participants must remain cognizant of the application of the federal securities laws.”
In light of the facts and circumstances, the agency has decided not to bring charges in this instance, or make findings of violations in the Report, but rather to caution the industry and market participants:
…the federal securities laws apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.
The SEC’s Office of Investor Education and Advocacy today issued an investor bulletin educating investors about ICOs. As discussed in the Report, virtual coins or tokens may be securities and subject to the federal securities laws. The federal securities laws provide disclosure requirements and other important protections of which investors should be aware. In addition, the bulletin reminds investors of red flags of investment fraud, and that new technologies may be used to perpetrate investment schemes that may not comply with the federal securities laws.
The SEC’s investigation in this matter was conducted in the New York office by members of the SEC’s Distributed Ledger Technology Working Group (DLTWG) — Pamela Sawhney, Daphna A. Waxman, and Valerie A. Szczepanik, who heads the DLTWG — with assistance from others in the agency’s Divisions of Corporation Finance, Trading and Markets, and Investment Management. The investigation was supervised by Lara Shalov Mehraban.
- Medicalchain – first UK-based Company to bring Blockchain Technology to the Healthcare Industry Announced ICO - August 23, 2017
- Ties.Network Announces Token Generation Event (TGE) - August 23, 2017
- Bodhi Raised $10M Ahead of ICO Launch - August 22, 2017
- myGeoTracking Teams with Rivetz to Provide State of the Art Device Security for Mobile Field Employees - August 22, 2017
- IBM Announces Major Blockchain Collaboration With Leading Retailers And Food Companies To Address Worldwide Food Safety - August 22, 2017
- SmartContract.com, Used by SWIFT, Announces Technical Leaders as Advisors, Launches ChainLink to Connect Smart Contracts to Off-chain Data & Payments - August 22, 2017
- Synechron Partners with R3 in One of the Largest Distributed Ledger Consortium Projects of the Year - August 22, 2017
- Hive Raises $8.95 Million to Build Blockchain-Based Invoice Finance Platform - August 22, 2017
- Ex Ethereum, Stripe & Apple Trio Raising $1 million – Skipping ICO – to Crowdfund Blockchain Wallet for Banks - August 21, 2017
- Cindicator Brings AI and Collective Intelligence to Drive 47% Investment Yield Per Annum - August 21, 2017
- Cryptopay Plans ICO Based on Users Request - August 21, 2017
- Kybernetwork To Close Their ICO Whitelist Early Due To Massive Early Registration - August 20, 2017
- VR Startup DECENTRALAND Closes Token Launch with $25 Million Raise in 10 Seconds - August 19, 2017
- Napoleonx Plans DAFs (Decentralized Autonomous Funds) To Bridge The Gap Between Crypto And Real Assets Active Investing, Unboxing The Crypto World - August 19, 2017
- Lampix Image Mining for Augmented Reality - August 19, 2017
- BlockMason Announces First SEC-Compliant Public American ICO - August 18, 2017
- Tightened EU Regulations Enabling Blockchain Technology in Pharmaceutical Supply Chain - August 18, 2017
- Mark Cuban Portfolio Company Unikrn Seeks to Sell $100 Million in UnikoinGold tokens - August 18, 2017
- Dash To Host Its First Ever Global Conference - August 17, 2017
- LAToken Tokenized Apple Shares to Sell Them for Cryptocurrencies - August 17, 2017
- Sensay, Groundbreaking AI and Chatbot Company Launches Token Sale - August 17, 2017
- ICOBox Token Presale Attracts $8.3 Million - August 17, 2017
- Indorse, the Decentralized Professional Social Network, Receives Additional Backing From Coinsilium After $5.5 million Pre-Sale - August 16, 2017
- Decentraland Partners With imToken, Connext, and Bitcoin Suisse - August 16, 2017
- Ethereum-based Car Towing Aggregator CarTaxi Plans ICO - August 16, 2017
- Ukraine Government to Allow Foreign Investors to Purchase Real Estate Online with Propy - August 16, 2017
- Cofound.it to Launch Weekly Crowdsales through September - August 15, 2017
- Blockstream Satellite: Broadcasting Bitcoin from Space - August 15, 2017
- Dr. Christian Seberino – Houston Texas Blockchain Course Kicks Off Friday August 18, 2017 - August 14, 2017
- Skycoin – Skywire Miner: Hardware for the Next Internet - August 12, 2017
- NSD and Waves kickstart development of Crypto Assets platform - August 12, 2017
- ICONOMI Introduces Columbus Capital As Its First Asset Management Partner - August 12, 2017
- Siberians to Launch ICO for Decentralized Betting eSports Platform - August 12, 2017
- Decentralized News Network Releases Alpha Update - August 12, 2017
- Gibraltar’s Fintech Sector Moves Forward – Awards Xapo E-money license - August 11, 2017
- AMBROSUS Partners with TREK THERAPEUTICS to Develop a Blockchain-powered Method to Track Quality in Pharmaceutical Manufacturing - August 11, 2017
- Outlier Ventures Becomes First VC To Hire ‘Head of Crypto-Economics’ With Appointment of Eden Dhaliwal - August 11, 2017
- Rivetz Raises $5.5 Million in RvT Token Pre-Sale; Public Token Crowdsale Begins Today, Capped at 200,000 ETH - August 10, 2017
- Leading Japanese VCs, Nippon Technology Venture Partners, FISCO Capitals, and ABBALab Inc all to invest in COMSA ICO tokens and XEM - August 10, 2017
- Binded Launches One Click U.S. Copyright Registrations - August 10, 2017
- Illinois Opens Blockchain Development Partnership with Hashed Health - August 9, 2017
- Jaxx and Cofound.it Partner to Give Best New Cryptocurrencies Immediate Liquidity - August 9, 2017
- GoldMint Project Plans to Provide 100 per cent Gold-Backed Stable Assets - August 9, 2017
- Launching a Blockchain Solution to Make Aviation Safer – Aeron.aero - August 9, 2017
- Blackmoon Financial Group Launches Blockchain-Based Platform for Tokenized Investment Funds - August 9, 2017
- SONM Launches Updated Platform With Discovery Algorithm - August 9, 2017
- AirFox Announces ICO to Make Mobile Data More Accessible and Affordable - August 8, 2017
- Golden Fleece Project To Expand Massive Altcoin Mining Ecosystem With Token Sale - August 8, 2017
- Notorious Lobbyist Jack Abramoff to Coach Bitcoin Activists in New Washington, DC-based Reality Docu-series from Blockchain Entertainment and Ignition Creative - August 8, 2017
- ATMChain’s Project In China With 7,000 Intelligent Media Screens ‘Goes Blockchain’ Through DECENT - August 8, 2017