What’s all that SEC decision everyone’s discussing?
The world of cryptocurrency exploded with relief – US regulators made a decision on the ICO (initial placement of tokens), stating that companies should receive through the sale of electronic assets that must comply with federal securities laws. For this year it was decided by the prices. Nevertheless, analysts, issuers and lawyers have already stated that its consequences will be positive.
The US Securities Commission (SEC) has published a report of an investigation into the DAO. During the “placement” period from May 28 to August 2016, about 700 people from the United States bought DAO tokens. The investigation was to answer the question of whether the US securities regulation was violated during the DAO project implementation by the German company Slock.it, the persons involved and intermediaries.
Why did it happen in the first place?
Recall that in October 2016, CEO of the Digital Currency Group (DCG) Barry Silbert warned in his forecast for 2017 that the next big step for the SEC could be a close examination of the activities of the organizers of cryptocurrency tokens (ICO). As Silbert noted at the time, it is possible that such crowd sales will be classified as securities trading and, accordingly, will have to be regulated.
It should be noted that the regulation by the SEC concerns only those tokens that, when issued, were positioned as stocks and correspond to Howie’s test. That is, these measures will not affect classical cryptocurrency tokens (coins), including Bitcoin, broadcast, etc. Thus, the SEC poses a serious barrier for American companies and private investors in the organization and participation in the ICO, if the project creators do not register it with the SEC.
Did the market and neighborhood respond to the news somehow?
Probably, we will see a more restrained spread of ICO in the United States, since adherence to the SEC rules in some cases requires the disclosure of a large amount of information from both the fundraising company and the participants in the offering.
This does not necessarily mean a decrease in the number of cryptocurrencies since the number of ICOs outside the United States can only increase. Klukhenek notes that American companies with a blockchain business may switch to more traditional financing mechanisms – attracting venture capital or private capital.
What does SEC’s choice indicate?
It depends on the circumstances of each transaction. However, it is clear that the “virtual” nature of the organization that sells securities based on the blockchain for other types of digital currencies does not exempt it from the regulation of American securities laws. Steve Obi, a partner at law firm Jones Day, says that you can determine if tokens are securities using the Howie test. This is a legal criterion that is used in American judicial practice to determine whether a particular instrument or a commercial transaction is an investment contract and, accordingly, security. The test includes four signs: investment; common enterprise; waiting for profit; third-party efforts.
Regarding the organization of The DAO, which was the subject of an investigation, the SEC decided not to view the situation as a crowdfunding contract, because, among other things, the project was not a broker or a fundraising portal registered with the SEC and the Financial Institutions Agency (FINRA).