Top 5 Questions from SEC’s Statement on ICOs

 

 

 

 

 

 

 

Gora LLC has advised companies implementing blockchain technologies, as well as counseling on ICOs, utility token sales and other cryptocurrency issues, including MSB licensing across the US.

Jay Clayton, Chairman of the SEC, Speaks Out On ICOs

Jay Clayton, SEC Chairman, recently released a statement about ICOs. In his statement, he cautions the common investor and the token user on fraud and other manipulative acts arising from cryptocurrency, ICOs and utility tokens.

The social media platforms and financial markets are abuzz with tales of fortunes made from and the rapid growth of cryptos and ICOs.

Top 5 Questions from Jay Clayton's Statement

Are ICOs legal?

Are “tokens” sold in ICOs required to be registered as securities with the SEC?

Are the token and cryptocurrency trading markets and exchanges fair and free of fraud? 

Are there substantial risks of theft or loss, including from hacking, in crypto wallets?

What’s the long-term outlook for tokens and cryptocurrencies?

Considerations for Main Street Investors of ICOs and Cryptocurrencies

Point blank, there is substantially less investor protection for ICOs, and greater opportunities for theft, fraud and manipulation.  

That’s largely because if ICOs, utility tokens and cryptocurrencies are not “securities,” then they are essentially regulated. Excessive touting in thinly traded and volatile ICOs markets may indicate “scalping,” “pump and dump” and other age-old manipulations and frauds.  

To date, no ICOs have been registered with the SEC.

What Should Market Professional Consider?

Market participants need to recognize that the SEC is quickly catching on to gimmicks.

The SEC has issued investor alerts on ICOs and cryptocurrency-related investments. One of the identified risks is that trading of tokens and cryptocurrencies may occur outside the United States, and exchanged funds may quickly travel overseas, where neither the purchaser nor the SEC may effectively pursue those bad actors or recover funds.

But, Clayton believes ICOs can be an effective way to raise funding. But the process needs rules, such as disclosures and purchaser protections – similar to what’s required under the Securities Act of 1933 and the Exchange Act of 1934.

Clayton also cautions those who operate systems, exchanges and platforms that effect or facilitate transactions of tokens and cryptocurrencies: they may be operating unregistered exchanges or otherwise be acting as broker-dealers in violation of the Exchange Act of 1934.        

Thinking of Selling Tokens, Here's What Should Think About.

Before launching a cryptocurrency, utility token or an ICO, promoters and issuers should consider whether: 

They’re selling a security,

The sale efforts through the White Paper need to be registered with the SEC;

They qualify for an exemption under the Securities Act,

Whether the firms and individuals selling the security are registered or otherwise affiliated with broker-dealers,

Whether the entire process complies with the Securities Act, the Exchange Act and, to another extent, the Investment Adviser Act of 1940 and the Investment Company Act of 1940. 

You should also consider whether accepting or receiving payments in cryptocurrencies trigger anti-money laundering and know-your-customer obligations, along with money services business (MSBs) or money transmitter license requirements. 

While a blockchain entry on a distributed ledger, instead of creating an excel spreadsheet to record stock transactions, may change the form of the transaction, it does not change the fact that some ICOs may be securities-related transactions. 

Beware.

Gora LLC Advises on Cryptocurrency, ICOs, Token Sales and Blockchain

  • Represent buyer of multi-million mining operation in Sweden and corporate issues.
  • Advise consultant of AppCoins on advisory relationship and activities.
  • Advise clients on money services business and money transmitted licensing requirements under federal and state laws.
  • Render opinions on New York Bitlicense regulations.
  • Technical implementation of ethereum blockchain.
  • Advise on fund formations utilizing cryptocurrency trading strategies.
  • Advise on ETF issues for bitcoin and other cryptocurrencies.
  • Advise on international ICO expansion to various countries, including, for example, Singapore, Vietnam, China, Hong Kong, Taiwan, Germany, Switzerland, Dubai, and Guernsey.
  • Advise on ICO and token sale for asset-backed tokens.
  • Advise on CFTC regulations for commodity deliveries, futures and options for bitcoin, ether and other cryptocurrencies.
  • Counsel client on forming fund for issuance of tokens to participate in ICOs and utility token sales.
  • Represent ClearCoin on utility token offering for its ICO.
  • Counsel CoinGenius on ICO issues.
  • Advise CoinFlip on ICO and money services business license issues.
  • Counsel Presence PBC on ICO issues and securities offerings.
  • Advise consultant of ATMCoin on ICO compliance issues and US operations.
  • Draft, review and comment on White Papers for blockchain technologies, ICOs, utility token offerings and cryptocurrency issues.
  • Draft Purchase and Sale Agreements for ICOs and utility token offerings.
  • Draft, review and revise terms of services and terms of conditions for ICOs and utility token offerings.
  • Strategic planning for ICO and utility token offerings.
  • Represent buyer of multi-million mining operation in Sweden and corporate issues.
  • Draft Purchase and Sale Agreements for ICOs and utility token offerings.
  • Draft, review and revise terms of services and terms of conditions for ICOs and utility token offerings.
  • Strategic planning for ICO and utility token offerings.