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Security (token) sellers get lots of money up front. Security (token) sellers then appear to work a little bit until they move on to their next security (token)

Security (token) sellers get lots of money up front. Security (token) sellers then appear to work a little bit until they move on to their next security (token) sale. Actual purchasers of "token" never exceed 10% of total purchasers because projects use is mostly Ponzi gambling. All fun and games till the SEC decides enough people have lost their life savings, and calling things tokens instead of shares is comedy.

hanniabu 9y ago
But they're not shares. Owning a token dies not necessarily mean you now own a portion of the company or profits.
- wmf 9y ago
  There are plenty of securities that aren't shares (equity). An argument could probably be made that these tokens are derivatives of some kind of underlying right to use.
- patio11 9y ago
  The Supreme Court has given the SEC ability to duck type the definition of securities, which is: > The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. Quoting Marine Bank v. Weaver: > The definition of "security" in the Securities Exchange Act of 1934 is quite broad. The Act was adopted to restore investors' confidence in the financial markets, and the term "security" was meant to include "the many types of instrument that, in our commercial world, fall within the ordinary concept of a security." The statutory definition excludes only currency and notes with a maturity of less than nine months. It includes ordinary stocks and bonds, along with the "countless and variable schemes devised by those who seek the use of the money of others on the promise of profits. Thus, the coverage of the antifraud provisions of the securities laws is not limited to instruments traded at securities exchanges and over-the-counter markets, but extends to uncommon and irregular instruments. We have repeatedly held that the test "'is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.'" ICOs are almost certainly selling securities. Tokens look like a duck. They quack like a duck. They are sold by people promoting them as ducks. A ToS which says "n.b. Our quacking avians are not ducks; they're a totally different non-duck like thing which will supplant ducks in the future because they're so much better than ducks and cannot be regulated as ducks" will probably not mollify the SEC.
  - erikpukinskis 9y ago
    Is a security the same as a share? Do you say you have a share of a bond? Do you have a share if you buy a loan or a CDO? Or does the word "share" imply a "stock" and therefore voting? Is an Amazon gift card a security?
    - Jabanga 9y ago
      A security is a standardized and tradeable asset that derives its value from a contractual claim. From my layman's understanding of US securities law, for a token sale to be defined as a securities offering, the token issuers have to make representations of the token providing the holder with contractual rights to a share of an underlying enterprise, including all profits derived from it. In my opinion, the vast majority of token sales haven't advertised their tokens as representing a legal claim on an enterprise and its profits. Orocrypt is one that has gone the route of issuing an equity-token, and if offered to US residents, would fall under US securities laws: https://orocrypt.com https://orocrypt.com Again, none of this is legal advice. Consult with a lawyer if you're going to do or participate in a token sale.
  - zdkl 9y ago
    Are there any cases of security-like instruments being explicitly declared out of bounds for the SEC? I'm thinking specifically of bond-like assets or "evidence of indebtness" emitted by private persons on MMO rpg assets which have real-money trading options either as proposed by the game editor or in third party markets? Even more specifically I'm thinking of EVE online's PLEX items who area open to in game market and have been known to change hands within various ingame organisations for very real money. Some of these organisations have schemes to offer tokens of indebtness in exchange for the acquisition of these digital items that could be construed as a proper security if I read this right. Am I missing something?
  - countersignaler 9y ago
    But they don't quack. Tokens do not represent a share of anything, nor any right to present or future anything, nor do the companies selling them ever claim such. They are disconnected from the success or failure of the underlying venture in a way that other stock-like instruments never have been. Indeed, the quoted paragraph specifically excludes currencies.
- Lazare 9y ago
  They don't have to be shares; they just need to be securities, and over the last 80+ years that term has been defined fairly clearly and broadly, and ICOs clearly count. For example, one definition of a "security" is an "investment contract", and what is (or isn't) an "investment contract" is defined by the Howey Test, which looks at whether: 1. It is an investment of money (or other assets) 2. There is an expectation of profits from the investment 3. The investment of money is in a common enterprise 4. Any profit comes from the efforts of a promoter or third party The typical ICO very obviously meets all 4 elements, inasmuch as it involves a company raising money via an ICO, where purchasers of the tokens 1) give money to the company 2) expected to profit from purchasing the tokens 3) the money was to be invested in building the company's core business and 4) their hope of profits would depend on the company's actions. > Owning a token dies not necessarily mean you now own a portion of the company or profits. That is correct, and one of many reasons why tokens are a bad investment, but it's not actually relevant. Securities come in a thousand flavours. (And no, the argument that tokens just look like securities, but if you read the fine print they don't actually promise profits or whatever won't fly either. If someone can show they purchased a token based on a representation from the promoter that there would be profits, the fine print doesn't matter.)
  - generalseven 9y ago
    Lazare, you said it: "The typical ICO very obviously meets all 4 elements, inasmuch as it involves a company raising money via an ICO..." Do we really know what a "typical ICO" is at this stage? And as fast as the sector is changing, how do we know what will be typical by the time new legislation is (a) passed and (b) enforced? Many (typical?) ICOs are not companies, registered as foundations to support free, open source software with crystal-clear terms of the token distribution: Which explicitly state that it is not an investment and that it is likely that participants will lose all of their money. This is just one exceptional example, and many more will follow. Forward-thinking jurisdictions such as Switzerland which understand and actively support ICOs are quickly developing a strong competitive advantage against the more regressive ones.
    - Lazare 9y ago
drcode 9y ago
Sigh... I'm sure many people will be overjoyed when the SEC comes to town and start treating everyone investing in ICOs like children that need to be protected from their own free actions. Sorry, but I'm skeptical this will make the world a better place (and yes, I fully agree many of these ICOs will likely end up being bad investments)
- hudon 9y ago
  We get it, you're a sovereign individual. That doesn't mean we shouldn't educate people about what exactly they are buying and the risks involved. There is a real risk here that many of these ICO teams get heavily fined and shut down by the SEC, regardless of if you think the SEC existing is a good thing or not. Spreading this knowledge is the right thing to do, trying to get people to turn a blind eye will only make you look more like you're trying to promote a ponzi scheme. Again, this comment implies no notion of ethics in the existence of the SEC or the tokens. I'm only promoting buyer-awareness.
  - nivertech 9y ago
    IMO "a sovereign individual" / "accredited investor" / compulsive gambler / etc. should be opt-in vs. opt-out or rich-only-opt-out
  - drcode 9y ago
    That's actually fair, I haven't invested in any ICOs because I agree most of them are bad investments long term.

hanniabu 9y ago

But they're not shares. Owning a token dies not necessarily mean you now own a portion of the company or profits.

wmf 9y ago
There are plenty of securities that aren't shares (equity). An argument could probably be made that these tokens are derivatives of some kind of underlying right to use.
patio11 9y ago
The Supreme Court has given the SEC ability to duck type the definition of securities, which is: > The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. Quoting Marine Bank v. Weaver: > The definition of "security" in the Securities Exchange Act of 1934 is quite broad. The Act was adopted to restore investors' confidence in the financial markets, and the term "security" was meant to include "the many types of instrument that, in our commercial world, fall within the ordinary concept of a security." The statutory definition excludes only currency and notes with a maturity of less than nine months. It includes ordinary stocks and bonds, along with the "countless and variable schemes devised by those who seek the use of the money of others on the promise of profits. Thus, the coverage of the antifraud provisions of the securities laws is not limited to instruments traded at securities exchanges and over-the-counter markets, but extends to uncommon and irregular instruments. We have repeatedly held that the test "'is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.'" ICOs are almost certainly selling securities. Tokens look like a duck. They quack like a duck. They are sold by people promoting them as ducks. A ToS which says "n.b. Our quacking avians are not ducks; they're a totally different non-duck like thing which will supplant ducks in the future because they're so much better than ducks and cannot be regulated as ducks" will probably not mollify the SEC.
- erikpukinskis 9y ago
  Is a security the same as a share? Do you say you have a share of a bond? Do you have a share if you buy a loan or a CDO? Or does the word "share" imply a "stock" and therefore voting? Is an Amazon gift card a security?
  - Jabanga 9y ago
    A security is a standardized and tradeable asset that derives its value from a contractual claim. From my layman's understanding of US securities law, for a token sale to be defined as a securities offering, the token issuers have to make representations of the token providing the holder with contractual rights to a share of an underlying enterprise, including all profits derived from it. In my opinion, the vast majority of token sales haven't advertised their tokens as representing a legal claim on an enterprise and its profits. Orocrypt is one that has gone the route of issuing an equity-token, and if offered to US residents, would fall under US securities laws: https://orocrypt.com https://orocrypt.com Again, none of this is legal advice. Consult with a lawyer if you're going to do or participate in a token sale.
- zdkl 9y ago
  Are there any cases of security-like instruments being explicitly declared out of bounds for the SEC? I'm thinking specifically of bond-like assets or "evidence of indebtness" emitted by private persons on MMO rpg assets which have real-money trading options either as proposed by the game editor or in third party markets? Even more specifically I'm thinking of EVE online's PLEX items who area open to in game market and have been known to change hands within various ingame organisations for very real money. Some of these organisations have schemes to offer tokens of indebtness in exchange for the acquisition of these digital items that could be construed as a proper security if I read this right. Am I missing something?
- countersignaler 9y ago
  But they don't quack. Tokens do not represent a share of anything, nor any right to present or future anything, nor do the companies selling them ever claim such. They are disconnected from the success or failure of the underlying venture in a way that other stock-like instruments never have been. Indeed, the quoted paragraph specifically excludes currencies.
Lazare 9y ago
They don't have to be shares; they just need to be securities, and over the last 80+ years that term has been defined fairly clearly and broadly, and ICOs clearly count. For example, one definition of a "security" is an "investment contract", and what is (or isn't) an "investment contract" is defined by the Howey Test, which looks at whether: 1. It is an investment of money (or other assets) 2. There is an expectation of profits from the investment 3. The investment of money is in a common enterprise 4. Any profit comes from the efforts of a promoter or third party The typical ICO very obviously meets all 4 elements, inasmuch as it involves a company raising money via an ICO, where purchasers of the tokens 1) give money to the company 2) expected to profit from purchasing the tokens 3) the money was to be invested in building the company's core business and 4) their hope of profits would depend on the company's actions. > Owning a token dies not necessarily mean you now own a portion of the company or profits. That is correct, and one of many reasons why tokens are a bad investment, but it's not actually relevant. Securities come in a thousand flavours. (And no, the argument that tokens just look like securities, but if you read the fine print they don't actually promise profits or whatever won't fly either. If someone can show they purchased a token based on a representation from the promoter that there would be profits, the fine print doesn't matter.)
- generalseven 9y ago
  Lazare, you said it: "The typical ICO very obviously meets all 4 elements, inasmuch as it involves a company raising money via an ICO..." Do we really know what a "typical ICO" is at this stage? And as fast as the sector is changing, how do we know what will be typical by the time new legislation is (a) passed and (b) enforced? Many (typical?) ICOs are not companies, registered as foundations to support free, open source software with crystal-clear terms of the token distribution: Which explicitly state that it is not an investment and that it is likely that participants will lose all of their money. This is just one exceptional example, and many more will follow. Forward-thinking jurisdictions such as Switzerland which understand and actively support ICOs are quickly developing a strong competitive advantage against the more regressive ones.
  - Lazare 9y ago

drcode 9y ago

Sigh... I'm sure many people will be overjoyed when the SEC comes to town and start treating everyone investing in ICOs like children that need to be protected from their own free actions. Sorry, but I'm skeptical this will make the world a better place (and yes, I fully agree many of these ICOs will likely end up being bad investments)

hudon 9y ago
We get it, you're a sovereign individual. That doesn't mean we shouldn't educate people about what exactly they are buying and the risks involved. There is a real risk here that many of these ICO teams get heavily fined and shut down by the SEC, regardless of if you think the SEC existing is a good thing or not. Spreading this knowledge is the right thing to do, trying to get people to turn a blind eye will only make you look more like you're trying to promote a ponzi scheme. Again, this comment implies no notion of ethics in the existence of the SEC or the tokens. I'm only promoting buyer-awareness.
- nivertech 9y ago
  IMO "a sovereign individual" / "accredited investor" / compulsive gambler / etc. should be opt-in vs. opt-out or rich-only-opt-out
- drcode 9y ago
  That's actually fair, I haven't invested in any ICOs because I agree most of them are bad investments long term.