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If you read the actual report (https://www.sec.gov/litigation/investreport/34-81207.pdf https://www.sec.gov/litigation/investreport/34-81207.pdf), you may notic
by mifeng 9y ago
If you read the actual report (https://www.sec.gov/litigation/investreport/34-81207.pdf https://www.sec.gov/litigation/investreport/34-81207.pdf), you may notice that the SEC is careful to apply securities law DAO specifically.
In particular, they apply the security test: "did investors invest money with a reasonable expectation of profits derived from managerial efforts of others?" Since DAO was a wisdom-of-crowd VC fund, the answer is a clear YES.
On the other hand, they are careful to say that other token sales MAY be securities but will be treated based on their specific facts and circumstances.
My takeaway is that this doesn't change anything. The SEC is proceeding cautiously: applying securities law in clear-cut cases, "studying the effects" generally.
It's also not a bad thing to comply with securities regulation. FileCoin is doing quite well selling only to accredited investors on CoinList.
- sillysaurus3 9y agoIs it still ok to use ICOs as as glorified Patreon or Kickstarter without worrying you'll run afoul of the securities laws? As long as no one is expecting profits from the tokens they buy from you. Where it gets strange is if your tokens are picked up by an exchange. What happens if someone buys your tokens with the expectation that they can sell them to someone else? Then the price of your tokens might rise, and they've made a profit. Does that count as expectation of profit?
- memossy 9y agoThey defined profits broadly in the scope of the release. Secondary sales have different rules.
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- vasilipupkin 9y agoSecondary sales involve person A selling to person B. At that point it's person A's problem, not the issuer's. The exchange, however, could get into trouble for trading securities without being registered
- scott00 9y agoThis is not really true. Once a company exceeds a certain threshold of non-accredited owners, it automatically becomes a public company, and faces the same disclosure and controls requirements as a company that became public via IPO. That is why all competently written private stock offerings sell stock with heavy transfer restrictions, so that shareholders can't force management to take the company public.
- vasilipupkin 9y agoYes, but token buyers are not owners, presumably
- scott00 9y agoThe analogy is necessarily inexact,ICOs are a new beast. But they don't have to be owners. Too many bond holders can make you public as well. If the tokens are securities and the sponsor/inventor/whatever is considered the issuer, lots of token holders is a problem for the issuer.
- wmf 9y agoIs there any advantage of using ICOs as as glorified Patreon or Kickstarter compared to just taking orders in ETH? Why are you issuing a token to begin with?
- sillysaurus3 9y agoPeople love feeling like they have something. Karma points, for example.
- rficcaglia 9y agothere are secondary community engagement and customer/user retention (lock-in?) benefits to using a token if the token is part of or essential to a yet-to-be-developed app, but not themselves traded, I cannot see why there would be any sense of an investment. but I would in such cases never market the sale of such tokens as an ICO or crowdfunding. I would offer them up for sale, as a product pure and simple. buy now. use later. i see it as selling an atari 2600 with no game cartridges, and then selling games later when available.
- wmf 9y agoAll tokens get traded. This is the point that I think a lot of people are missing.
- rficcaglia 9y agoyes, i am missing that...why must all coins be traded? why not just have a coin that is issued once and then spent by the owner? where does it say that exchanges and trading are required? (serious question...is there any such requirement?)
- wmf 9y agoSome exchanges compete to support the most tokens (I guess to earn fees on the trading). If it's possible to transfer a token, exchanges will starting trading it immediately.
- mifeng 9y agoI predict that CoinList will create some type of exchange only for accredited investors and use an SPV to exceed 99 investor limit.
- will_brown 9y agoIm curious why would the price of tokens (which are not equity backed securities) rise? If I understand it right, your hypothetical is just a kickstarter project where a funding level reward is a "virtual token" and just as say a reward of a t-shirt this token doesn't represent equity in the project? Would anyone expect the value of the t-shirt to go up? Is it possible, yeah actually, imagine if Apple originated through crowdfunding, I bet that original crowdfunding t-shirt might sell on the secondary market, so it all boils down to if there was a subjective belief of a profit or a reasonable personable would have expectation of profit.
- runeks 9y agoAs far as I can see from observing the market, the expectation that literally any token will rise in price is evidenced in the market. If you doubt this just go to https://coinmarketcap.com/all/views/all/ https://coinmarketcap.com/all/views/all/ which lists over 1000 different tokens, the first 300 of which have a market cap of over one million USD (e.g. HTMLCOIN). In other words, tokens do tend to increase in price after their launch, but only because people expect that their price will increase after launch. It's like the housing market in 2005, except the investment sums are relatively minuscule. It's a self-fulfilling prophecy, for the time being, and the issuers have nothing to lose. Only the buyers risk a loss.
- will_brown 9y agoHousing prices weren't increasing because people expected the prices would increase...home prices were increasing because the supply of money/loans for houses exponentially increased. In other words NINJAs (no income, no job applications) were being rubber stamped for million dollar plus homes with $0 down and 103% financing. And so prices continued to go up because the next NINJA would be approved to buy yesterday's million dollar house of 2 million today. The same conditions don't exist with ICO tokens.
- runeks 9y ago> Housing prices weren't increasing because people expected the prices would increase...home prices were increasing because the supply of money/loans for houses exponentially increased. Why would the supply of money/loans increase unless people were taking out loans to buy houses more than usual, and why would they do that unless they expected the price to increase? The increase in supply of loans happened because people bought houses expecting a profit. So increase in credit supply is a secondary effect that occurs when people are more willing than usual to buy houses on credit. And people are willing to this when they expect a profit.
- hosh 9y agoI attended https://www.meetup.com/SFLegalHackers/events/240629913/ https://www.meetup.com/SFLegalHackers/events/240629913/ and sat in on a conversation where a lawyer was talking about issues like this. She specializes with working to help ICOs comply with existing regulations. From what I heard, SEC is not the only agency involved, and each ICO is different. Interesting stuff.
- jesseclay 9y agoJesse from CoinList & Protocol Labs here -- completely agree that following securities regulation is an especially great idea. Unfortunately doing that correctly can be really challenging. Despite several misleading doom-and-gloom articles written today (http://fortune.com/2017/07/25/sec-says-digital-tokens-are-securities-warns-of-fraud/ http://fortune.com/2017/07/25/sec-says-digital-tokens-are-se...) the SEC has not said that all tokens are securities. Rather, application tokens are a promising new technology that enable all kinds of use-cases, each one unique from the next, and each having a unique 'regulation profile'. It would be very short-sighted to apply broad sweeping legislation and with this ruling, it's clear that the SEC also feels the same. Just like mifeng mentioned, it really is a facts and circumstances determination per token. Given we had to build all of the token sale scaffolding (legal, tech, etc.) for Filecoin, it made sense to open this up to other technologists as well. Our hope with CoinList is that creators can focus on building awesome tech and expanding the valuable uses for application tokens while reducing the amount of time and resource they need to spend making sure they stay within the parameters of the law. Filecoin may be limited to accredited investors for this particular sale, but that's not to say other tokens that use the platform in the future would be required to do the same. Ultimately the decision is up to the creators, but they should be very well educated on the implications of what those choices could mean.
- DennisP 9y agoSo I see CoinList uses AngelList, which I think verifies accreditation via financial accounts. From what I've read, the SEC doesn't mandate any particular method to verify net worth. In this space, wouldn't it make sense to accept a signature proving ownership of a large ETH balance?
- will_brown 9y agoI am curious, if the SEC investigated and issued a report on DAO...why not investigate the Ethereum Foundation/Blockchain itself for the ICO of Ether? I'd like to see the SEC issue a written finding on the factual distinction and legal analysis how one is a security and the other is not, it may be as simple as the way the DAO tokens were marketed vs how the Ether ICO token was marketed. The FileCoin ICO will be the first CoinList ICO, seeing as it was set for 2 days from now I wonder if it will be effected. All the major crowdfunding websites seem to offer equity funding options now, and I'm curious about how they pull that off legally, but if they do, I imagine CoinList will jump through the hoops so FileCoin is compliant.
- mifeng 9y agoIn my limited and non-lawyer understanding, that's not the SEC's modus operandi for investigations like this. They want to leave themselves room to study the market and issue definitive guidance later. Also, these investigations cost time and money. So to discourage bad actors, they go after the most obvious offenders but it's not really in their best interest to present a positive counterpoint.
- drcode 9y agoThis is naive: The reason the SEC report is specific is because they don't know what the reaction to the ruling will be, what kind of political blowback they could get. Starting with "The DAO" is a politically safe move- If it goes over well with their acquaintances (revolving door and all that) they will start making broader rulings.