FINRA Cautions Crypto Investors About Concerning ICO SAFT Claims


The Financial Industry Regulatory Authority (FINRA) recently cautioned investors about ICOs that claim they’ve adopted Simple Agreements for Future Tokens (SAFT) as evidence of investment security or regulatory compliance.

FINRA issued the warning in August 2018 in Investor’s Alerts, a publication that addresses investor issues. The announcement indicated that the SAFT framework is not a guarantee of regulatory approve. Rather, it is comparable to a private option regulators may or may not choose to align with. As the announcement shows:

Know that investing in a SAFT contract does not mean that the offering is “safe” or compliant with applicable federal and state laws . . . no matter what a company says about the ability of a token to change characteristics from a security to a non-security, there is no guarantee that the SEC or the courts would agree with a company’s assessment. A determination of whether something is a security is a facts and circumstances analysis, and titles don’t change that.”

SAFT agreements are investment contracts offered by cryptocurrency developers to accredited investors. The agreements promise delivery of a certain number of tokens when the network or company is operational. The agreement differs from the standard ICO because the ICO issues tokens or coins immediately.

SAFT contracts fall under the definition of a security and as a result, they must meet regulations. Further, the contracts are issued as securities to investors during the ICO stage, which assures that the tokens will be delivered afterward at a specified time. However, it is also important to note that tokens can be labeled as utility tokens outside of extant securities laws.

More Regulatory Attention

CCN reported in 2018 that the SEC is looking more closely at ICOs and blockchain startups due because many have violated existing regulations. Further, the SEC served about 80 cryptocurrency startups with subpoenas requesting information on the structure of token sales and pre-ICOs. The probe into ICOs may continue into the coming year.

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