November 15, 2017

ICOs: SEC Chair Hasn’t Seen One Yet That Wasn’t a “Security”

In July, the SEC issued a highly-publicized Section 21(a) Report detailing the circumstances under which digital assets – such as “tokens” or “coins” – may be regarded as securities. In a recent speech, SEC Chair Jay Clayton touched on securities law issues surrounding ICOs – but as this blog from Duane Morris’ David Feldman notes, it was his off-script remarks that were the most interesting:

Chairman Clayton went a bit further today, going off his script to say that he has yet to see an ICO that doesn’t have “sufficient indicia” of being a securities offering. He also mentioned that the trading platforms could face SEC scrutiny and might have to either register as national securities exchanges or make clear they have an exemption from doing so.

Pro tip – If Jay Clayton hasn’t seen a ICO that didn’t involve a securities offering, you should expect the SEC to be skeptical of arguments that “this one’s different.”

ICOs: Disclose That I’m Getting Paid? But I’m a Celebrity!

I’ve reached the conclusion that the SEC is totally out of touch (said with “tongue in cheek”). If the folks who worked there watched TMZ like the rest of us, they’d know better than to suggest that our nation’s celebrities should have to comply with the law like ordinary people.

Unfortunately, based on this recent statement addressing unlawful celebrity promotional activities for ICOs, everybody at the SEC must be watching C-SPAN. Here’s an excerpt:

Any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion. A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws. Persons making these endorsements may also be liable for potential violations of the anti-fraud provisions of the federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers.

The reference to touting in the statement’s “parade of horribles” is interesting. Touting is prohibited by Section 17(b) of the Securities Act, but in recent years, it hasn’t featured prominently in the SEC’s enforcement efforts – that is, until last spring, when the Division of Enforcement conducted an anti-touting “sweep” targeting 27 firms and individuals. Of course, none of the defendants in those cases had their own television show, much less their own line of non-stick cookware. We’re posting memos about SEC enforcement actions in this area in our “ICOs” Practice Area.

ICOs: Most People Who’ve Heard of Coin Offerings Think They’re Illegal – and Plan to Invest

According to this LendEDU survey addressing public awareness of cryptocurrencies & initial coin offerings:

– 25% of Americans have heard of ICOs
– 21% of Americans believe that ICOs are illegal
– 15% of Americans intend to invest in ICOs

So, while roughly 85% of Americans who’ve heard of ICOs think they’re illegal, 60% of the members of that same group intend to invest in them. Now, I suppose some or all of that 15% could have come from the 75% of Americans whom the survey says have never heard of an ICO – but I’m not sure whether that’s better or worse…

Anyway, to me, this says 3 things:

– First, the SEC is going to have a heck of a time policing this stuff
– Second, the 60% deserve what they get
– Third, resistance is futile

Welcome to “DotCom II: The Tokening,” everybody! It’s a long way off, but we have just posted the flyer for this webcast: “The Latest on ICOs/Token Deals.”

John Jenkins