SEC Closing in on ICO Enforcement. In recent months there have been a massive amount of people jumping on the cryptocurrency bandwagon and launching their own token coins in the form of Initial Coin Offerings (ICOs) in order to raise funds for their projects.
While this innovation is great to see, just like with most things that are not tightly regulated, there are people taking advantage of others and not delivering on their promises.
This is why the Securities and Exchange Commission in the United States has been working hard in order to build regulations for these ICOs. News coming out of the SEC indicates that in the near future it may be expected that there will be major actions implemented when it comes to these ICOs.
It is believed that these measures will be rolled out over the course of the next number of years in order to bring some regulation to this industry.
There has been certain guidance issued previously by the SEC when it comes to ICOs, such as their explanation as to the reasons why it has given the tokens that were issued by the folks of DAO a classification of being securities.
There have been no formal rules outlined or announced to date. DAO was originally a smart contract based on ethereum that was sold to investors, but which is no longer in operation.
Certain members of the industry are declining the proposed regulations, such as tZERO and others have implemented some form of utility into their tokens, which will classify them as a resource that is of vital importance for software products, thereby passing the current classifications.
However, there is no doubt that if companies try to play hardball with the SEC, there is a significant chance that they could be opening themselves up to a lengthy and expensive SEC investigation and subsequent litigation.
Many companies in the space do not want the hassle associated with fighting in court as to whether or not tokens are actually a security and will go along with whatever regulations are decided upon.
When it comes to being classified as a security a startup will have to ensure that they go through all of the necessary steps that are outlined by the SEC. This includes deciding if this is going to be an offering that is pursuant to an exemption to registration or if it is going to be on a registered basis.
Then there will be a lot of scrutinies placed upon what the proceeds of the ICO are going to be used for, the projects that have been outlined to the investors during the ICO.
The use of these funds needs to be clear and precise to ensure that nothing unscrupulous is at play. There are just a few of the considerations that arise out of tokens being classified as securities and those having ICOs will have to do their homework in order to tick all of the relevant boxes to keep the SEC happy.
This is a space that should be closely watched as it will give indications as to how the world of ICOs will develop and provide more of a safety net there for investors.
Good post, thanks for sharing it Vlad