Analyzing Cryptos Legally: Cryptocurrency Site Publishes Current Regulation Analysis
A lot of crypto investors these days are considerably worried about the legal aspect of cryptos. They are in a huge grey legal area in many countries, even in the United States, and while entities like the Securities and Exchange Commission (SEC) do not do something about it, the problem will certainly persist for a long time.
To help the traders, The Block Crypto has recently published an article written by the legal expert Stephan Palley and Nelson M. Rosario. In the article, they try to summarize three crypto cases and published their analysis for crypto investors.
In the article, the two experts mostly talk about three cases. The first one is SEC versus Blockvest. Blockvest was accused by the SEC of selling unregistered securities in the form of an Initial Coin Offering (ICO) and Blockvest affirmed that they were not securities and, therefore, the company was not committing any security fraud.
The SEC has originally decided to sue Blockvest and the entrepreneurs that run the company for violating and frauding the Securities Act and the Exchange Act for not registering. They sold BLV tokens to raise capital and claimed that they were registered and approved by the SEC, CFTC and NFA. The company has also claimed that they were audited by Deloitte, a large auditing firm.
The company did, in fact, fool the investors, as the allegations were not the truth and the company was neither registered nor verified. The court used a temporary restraining order on the assets of the company and investigated further.
While they did lie to people, they did not even try to defend themselves from these accusations. What they did instead was to claim that BLV tokens were not securities. This was actually a rather clever plan as the Securities Law would not be applied if the tokens were not securities, so they would escape.
The defendants affirmed that the BLV tokens were never actually sold and that they only were used publicly for testing and that only 32 entities used them. Therefore, they would not as securities.]
At the time, the court applied the Howey Test and it determined whether a token 1. is an investment of money; 2. is a common enterprise and; 3. has expectations of profits. That’s how Blockvest got away. It proved that it was not a security because there was no real ICO yet and they promised that they would warn the SEC if they ever did.
It did not matter at all that they lied, they were able to get away because they were smart and knew the legislation well. However, the case if not over yet.
The other case was SEC versus Recoin Group Foundation. In September 2017, the SEC went after the main responsible for Recoin ICO and Diamond IMO, Maksim Zaslavskiy, two exchanges accused of promoting fraud via ICOs. This is important because it was the first ICO to be attacked by the SEC.
Zaslavskiy lied a lot about the ICO and what was being offered. The whole process of buying the assets was very badly handled. The whole thing was a good example of how wild the market of ICOs was last year before the SEC and other entities decided to intervene. People received “certificates of ownership” for their tokens instead of tokens. Those were not good days.
The whole thing was a huge mess. The man decided to change the company, invest in another thing (diamonds instead of real estate) with the money from the investors and it all went down. In the end, he was considered guilty by the court, which is somewhat obvious.
Finally, there is Blockchain Mining Supply and Services Ltd against Super Crypto Mining and DPW Holdings, a fight between two mining companies. It involved an alleged breach of contract that would involve 1,100 Bitmain Antminer S9 and 1,100 power supplies units being sold.
According to the allegations, only half of them were paid and the others remained in the store because they were not paid. The problem is that, as soon as the company decided to sell to other companies the 600 remaining ones and give the difference to another one. However, as the market was not in such a good shape, they received way less money and that is when the troubles began.
What is the lesson learned from all this? Well, beware of ICOs. Sometimes the companies are full of liars and they will not even be legally held responsible for their mistakes if their tokens are not considered securities.