ABA Journal: Blockchain-based initial coin offerings chart uncertain legal terrain
By Jason Tashea
(Excerpt) In the second half of 2017 alone, the SEC’s leadership, including chairman Jay Clayton, gave at least three public remarks regarding ICOs or tokens as securities. The agency also published three ICO-related investor alerts and a lengthy report, known as the DAO report, discussing the potential securities violations committed by the sale and use of tokens on the now-defunct DAO platform—a stateless, decentralized investor-directed venture capital fund.
Current SEC employees declined to be interviewed on the record, and the agency has not made public statements about SAFTs. However, the documents and public comments show that the SEC will enforce current law as it pertains to ICOs while intending to promote the legitimate use of the technology.
Wesley Bricker, the SEC’s chief accountant, during a speech in Washington, D.C., last fall, said “The [DAO] report makes clear that the federal securities laws apply to those who offer and sell securities in the U.S., regardless of whether the issuing entity is a traditional company or a decentralized autonomous organization, whether those securities are purchased using U.S. dollars or virtual currencies, or whether they are distributed in certificated form or through distributed ledger technology.”
The commission has filed numerous actions and trading suspensions related to ICOs. In one example, the SEC’s new cyber unit brought an emergency action against PlexCorps, a Canadian business promising a huge payoff with its ICO. Not registered as a security with the SEC, the company raised $15 million between August and December 2017. A federal judge froze the parties’ assets pending trial.
While acknowledging the opportunity for fraud, Paul Atkins, a former commissioner and co-chair of the industry-led Token Alliance, an education and policy initiative, says, “We see lots of scams coming out of any new technology, but that doesn’t mean the whole thing is corrupt.”
That seems to reflect the sentiments of Clayton, the SEC chairman, when he said during a public address last November that “the commission will continue to seek clarity for investors on how tokens are listed on these exchanges … and what protections are in place for market integrity and investor protection” but made no mention of curtailing the legitimate use of ICOs.