ICOs neither Can Hide nor Plead Ignorance
It is quite clear now that a situation has reached where initial coin offerings (ICOs) could not plead any ignorance. There are no more dilemmas whether the crowdfunding should register their ICOs with the regulator. There is also no alternative but to complete any expenses or delays or paperwork in respect of token or coin sales. Similarly, there should not be any doubt in treating them as security and not just as a utility as was the case until last year.
The United States is the biggest and lucrative market for the ICOs to crowdfund big ideas or projects. However, things have changed in the current year from what it was last year. Any ICO was treated as utilities last year and that there was nothing to hear about any specific ICO being complied with regulators. On the other hand, the launching of any ICOs in the current year is loaded with uncertainty, as well as, risks. That is mainly because of tightening of regulations amidst high volatility in most of the cryptocurrency prices.
The ICOs or digital coins sales were seen as a significant source of capital circumventing the current limitations of fundraising. As a result, ICOs were seen as solid means of raising money. However, they have not been exempted from the existing laws. The first six-month period of last year has witnessed ICOs raising funds merrily from American investors. This included Tezos as investors assumed that it was above board. That was because they were thinking it as a utility token and not as security. However, the lawsuit proved it otherwise.
There were confusing tags to attract investors last year. For instance, an ICO did not fail to tag the word ‘utility’ to remove doubts. There were also others to project their tokens not as security thus avoiding the dragnet of SEC. However, there was no change in the belief that most of the ICO tokens constituted as security. This view was espoused by none other than the SEC chairman, Jay Clayton.
Interestingly, on April 20, there was a summit known as ‘Start Engine’s ICO 2.0’. Significantly, one of the discussions among the panel was in respect of litigators. There were participants like Perrie Weiner of DLA Piper, Paul Hastings partner, Nick Morgan, and Venable litigator Dan Moylan. These professions were familiar with the securities of law that the SEC follows.
Crowdfundx CEO, Darren Marble, who took part in the summit and discussion panel, told news.bitcoin that “At the end of the day, investors have to win for blockchain businesses and cryptocurrencies to continue to thrive. With the recent spate of scams, fraud, and theft associated with ICOs, STOs [security token offerings] is a welcome, much needed alternative.”
Though he believes that disclosure could not root out all scam deal, it could reduce the bad actor’s number. As a result, it will attract higher caliber issuers. The key message from the summit was that before thinking about any ICO, startups must discuss the issue with a council. Another message was that the SEC is keen to weed out the bad actors to protect well. Its actions are not meant to shut down the industry completely.