Reckon your ICO tokens aren't securities? The SEC chair says they likely are
United States Securities and Exchange Commission (SEC) Chairman Jay Clayton has warned people conducting initial coin offerings (ICOs) that they could fall foul of US security laws.
An ICO is a form of internet-based crowdfunding that can be a source of capital where, in return for investor cash, the organisation making the offer provides virtual coins or tokens, with the recorded transaction stored on a blockchain. The structure of the ICO determines whether security laws in various jurisdictions apply.
Clayton struck out at the idea of an ICO avoiding security laws simply because the traditional ledger is replaced by a blockchain entry.
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"A change in the structure of a securities offering does not change the fundamental point that when a security is being offered, our securities laws must be followed," Clayton wrote in a statement.
"By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws."
"Generally speaking, these laws provide that investors deserve to know what they are investing in and the relevant risks involved."
Clayton warned "Main Street" investors that if they participate in any coin offerings, they go in with their eyes open, and be aware that no ICOs have registered with the SEC.
Earlier this month, the SEC filed charges of fraud against PlexCorps. According to the SEC, PlexCorps allegedly raised up to $15 million from thousands of investors by falsely promising a 13-fold profit in less than a month on its PlexCoin token.
"This first cyber unit case hits all of the characteristics of a full-fledged cyber scam and is exactly the kind of misconduct the unit will be pursuing," Robert Cohen, chief of the SEC cyber unit, said in a statement. "We acted quickly to protect retail investors from this initial coin offering's false promises."
In September, the Chinese central bank -- The People's Bank of China -- took the decision to ban ICOs, and demanded any completed offers go through a refund process.
The same month, the Australian Securities and Investments Commission issued ICO guidance similar to that from Clayton.
In July, the SEC concluded that Ethereum tokens purchased in the DAO, a crowd-based investment fund which was hacked in 2016,were securities.
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