The Death of the ICO: Has the US SEC Closed the Global Window on New Tokens?

Published on by Cointele | Published on

One of the SEC's most significant powers is seemingly simple: Anyone offering securities to the U.S. public must register that offering with the SEC. SEC registration requires a company disclose a great deal of its financial information, as well as decision-making power to the public.

It is an interesting case study both because the year-long ICO began just a month before the SEC issued the DAO report, and the firm included an advisory on the site for its ICO against U.S.-based investors participating.

"The fact that the SEC settled for $24 million - I think that indicates that the SEC saw some risk in their position," said John Berry.

The same case brought to light that the SEC is investigating the project on the same charges, and the class-action settlement would not necessarily protect the foundation from further SEC pursuit.

Canadian messaging app Kik got in trouble for using a SAFT in an ICO in September 2017 and remains locked in a deathmatch with the SEC. However, part of their issue was that the app itself was failing, so its Kin token struck many as a lifeboat on a sinking ship rather than an earnest project.

As mentioned earlier, the ICO for TON's native Gram tokens raised $1.7 billion before the SEC filed an emergency action stopping their distribution in October.

"Just because there's some distance in time between the sale of SAFT and the sale of a token doesn't mean that the SEC isn't going to consider that token separately as a security. All of what I just said is based on the model of ICOs from 2017, 2018, in which each token represents a share in the issuer, and that is the original sin that needs to be addressed."

For their part, the SEC's fintech wing, FinHub, declined to comment on whether it's possible to hold an ICO within the US without assuming it classifies as a security and also declined to direct Cointelegraph to anyone internally willing to go on the record about recent actions, instead deferring to the same two no-action letters that Davidson referenced back in October - TurnKey Jet and Pocketful of Quarters.

The U.S. SEC plays a major role in global financial regulations due to the size of the country's economy and investment market.

"Internationally in several jurisdictions, it is clearly treated as a utility token - it already trades on Binance, for example. And we got legal opinions from those jurisdictions because the regulations are different and currently there's no U.S. exchange for us. But the fact that U.S. exchanges - either a regulated exchange needs to exist, no license has been given out from the SEC yet for such regulated ATSs or an exchange - or you achieve sufficient decentralization to the point that even in the U.S., it is clearly a utility and not a security."