March 14, 2018
The rise of cryptocurrency is bringing a new level of scrutiny to initial coin offerings (ICOs). In his latest article in the Triangle Business Journal entitled "SEC Exceeds Scope by Calling Fouls on Entrepreneurs," Business attorney Jim Verdonik addresses the crackdown on companies using ICOs to raise money.
Currently, the Securities and Exchange Commission is full-court pressing blockchain/coins entrepreneurs off the court by shutting down their ability to raise money through Initial Coin Offierings (ICOs).
Is the SEC acting like a player or a referee?
The issue is: are coins/tokens securities?
The analysis involves legal principles the Supreme Court announced in SEC v. Howey, that selling land with service contracts was a type of security called an "investment contract." The Howey test is "whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others."
Condo hotels often involve investments contract issues. Sometimes condos that are real estate are also securities and sometimes they aren't. Specific facts matter, including the sales pitch and provisions of rental pool contracts under which hotels share revenue with condo owners.
Condo hotels are the gentlemanly side of the SEC. The SEC gives guidance about specific facts and does not try to kill the entire condo hotel industry.
Contrast this with the SEC trash-talking ICOs.
Rightly, the SEC reminds people the Howey test governs and is taking action against some ICO sponsors for fraud. That's normal. Commit fraud and you should face consequences.
But SEC Chairman Jay Clayton is trying to shut down every form of ICO. According to Clayton, all coins/tokens are securities under the Howey Test.
Beyond that, the SEC's commissioner is threatening to sanction law firms that disagree with the SEC's ICO dictates. According to Clayton, all lawyers who think there is room for debate are abetting fraud. By doing so, the SEC is giving up its role as referee and is getting down and dirty like a player in a street pickup game.
You can read the entire article here, behind the paywall.