On July 25, 2017 the SEC published a press release giving its assessment to the ICO. According to the regulator, the rules that are valid for common shares of companies when they enter the exchange must apply to the tokens. The Commission came to this conclusion after an annual investigation of the hacking of The DAO, which lost tokens worth almost $50 million in a hacker attack. The SEC believes that this approach should protect investors.
On the federal level, there are no current regulations banning ICOs specifically, although ICOs are expected to be registered and licensed properly like every other US company. This includes registering with the SEC if the ICO is to sell or trade securities. The SEC has recently found that some altcoins may be a security, and as such, may be subject to SEC’s ruling in the future. All ICOs are expected to adhere to AML/KYC practices. Failure to adhere to these practices may leave an ICO open to legal action or possible seizure.
SEC Chairman Jay Clayton addressing the congress in February 2018 stated: “I believe every ICO I’ve seen is a security”. “I want to go back to separating ICOs and cryptocurrencies. ICOs that are securities offerings, we should regulate them like we regulate securities offerings. End of story,” – he remarked.
Like in old joke “there are no healthy people, only insufficiently examined”. What does it mean for the industry?
After the received instructions, crypto exchanges limit the purchase of tokens, as in the future there may be negative legislative norms regarding security tokens or at least issues regarding companies that issued these tokens.
Companies that organize ICO, in turn, have found themselves in a difficult situation when their token is essentially utility, but they claim it as security for larger investments. That means that investors who may not even use the product / service of this company will acquire a token only for further resale on the exchange. Others indicate that any utility token can also be exchanged between users for real money, but, however, this will no longer be a transaction through the exchange.
Anyway, the SEC’s questions are well-grounded and we believe that in the future this will lead to some order in this market. We remember that by the end of 2017 there were too many failed and frankly fraudulent ICOs, and we think this will be able to protect users from investing in hazardous projects.
Since Clayton believes that virtually all ICOs are securities offers (although the organizers of many legally competent ICOs indicate that they offer a utility token), this can have important implications for the world view of all coin offerings. Outside the United States, citizens of most countries who directly or indirectly violate the legal system of the States may suffer. At the same hearing, Clayton responded to Senator Elizabeth Warren’s question that all ICOs, as they are conducted today, are “a violation of the law.”
STO: What does security token mean