Experts Analyze SEC’s New Civil Case Against ICOs as a “Securities Offering”: What Does This Mean?


On November 16th, the SEC published a new press release regarding digital asset securities issuance and trading. The SEC has been dealing with fraudulent initial coin offerings (ICOs), along with ICOs that simply are not following registration requirements for the sale of securities. In a report from DecryptMedia, they provided some clarity on the statement, though it is clear that they found some irony in it.

The SEC made an annoucement today on the state of two cryptocurrency startups and a case that was settled for their noncompliance. In the case, as DecryptMedia amusingly writes,

“Two ICO-created startups have agreed to pay fines—not for doing  anything scammy or obviously fraudulent, but for simply failing to ask for the regulator’s blessing. Just like virtually every other ICO ever conducted.”

Overall, the two exchanges basically agreed to refund customers, pay hundreds of thousands in fees, and adjust their registration to reflect that they are selling securities. The industry naturally reacted, resulting in a sudden drop in the BTC price.

Nic Carter, a partner with Castle Island Ventures, took to Twitter to bring the news to his followers. He wrote,

“Landmark case today. This is going to happen hundreds and hundreds of times in the next 2-3 years until all the ICOs are gone.” He added to the post in the comments, bringing up an important point that the SEC appears to be “working their way up the ICO totem pole.”

Explaining, Carter elaborated on the way that the SEC appears to be targeting the easiest aspects of ICOs to take over, making it easier for them to establish enough caselaw to take on the bigger issues. As Carter puts it, “They don’t want another SAC Capital Advisors debacle.” He adds that this is important for the SEC, because the authority has never gone after an ICO with such aggression that was not a fraudulent token sale. At best, they did not classify their tokens, but the damages caused by legitimate scams have never been approached like this.

Still, the way that the SEC phrases their violation bring up another important point – almost no ICO has registered as securities at this point. Putting it simply, Carter added, “This implicates pretty much every ICO I’ve ever seen.” In the next comment, he refers his followers to get coverage on this topic from Preston Byrne instead, “if you want an actual lawyer’s perspective.”

Preston Byrne, who is a partner with Byrne & Storm, P.C., commented, “Given the EtherDelta and now Paragon news, if I had to guess what caused the BTC price drop this week, I would guess it’s people front running regulatory enforcement news.” About two hours later, he posted a blog called “Vindication” to Twitter, discussing the fact that he has brought these issues to the table before, seemingly agreeing indirectly with everything that Carter has said.

Attached to the blog, he added on Twitter, “Over the years there has been a lot of umming and ahhing about token sale legality in America. Many folks chewed up a lot of bandwidth and money navel gazing and equivocating. I was the jerk who dug in my heels and said ‘no.’ I was right. They were wrong.”

In the blog, he elaborated on his disdain and vindication of seeing these issues finally come to light. He wrote,

“The knock-on effects for the rest of the crypto ecosystem will be substantial, as US projects wind down or register, projects that have not yet issued tokens pivot to Europe and Asia, and years of legal wrangling begins to pick up the mess engendered by a couple of years’ worth of crypto-anarchic whataboutism, Silicon Valley move-fast-and-break-things-ism and plain old bad legal advice.”

Another lawyer, Jake Chervinsky, also felt the need to speak out on Twitter, focusing on a particular part of the press release from the SEC. He said, “This is *by far* the most important & helpful statement from the SEC on crypto regulation yet. HERE: ‘[T]here is a path to compliance with the federal securities laws going forward, even where issuers have conducted an illegal unregistered offering of digital asset securities.’”

Taking away equity that a company earned basically defeats the purpose of having a token sale in the first place. Left with no profit or funding, ICOs will starve out of existence. However, as many critics of the SEC’s regulations in the crypto world believe, this could be the side effect that the SEC has been working towards this whole time.

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