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The SEC has charged two initial coin offerings with defrauding investors
- QAPereo 9y agoThe Colony is looking pretty damned bright right about now. https://blog.colony.io/the-colony-token-sale-7ac14c845bc0 https://blog.colony.io/the-colony-token-sale-7ac14c845bc0
- kenbaylor 9y agoColony took a very conservative view of the way things may turn out. But even if they went ahead, they would have been far far far away from the cross-hairs of the SEC. Colony are a legitimate business and honest. The SEC is only going after the egregious ones, as they don't want to kill nascent crypto/ICOs in the USA.
- crsv 9y agoI mean I'm totally sure that the Paris Hilton coin and the Floyd Mayweather endorsed ICO were 100% legitimate business models and that these two examples were just a couple of outliers. /sarcasm
- kensai 9y agoI think they should get the list of ICOrating and start working on it from the worst to the least worst.
- ve55 9y agoIt's nice to see action like this being taken in cases so blatantly fraudulent. One thing to take note of here is that the reason why the SEC is taking action is not simply because of reasons related to tokens or securities, but instead due to defrauding and lying to investors. Hopefully we'll see more cases like this happening to the actors that deserve them the most. I need not mention names since I think others will do that for me.
- wpietri 9y agoAgreed. I heard an ocean of hype about how freedom from regulation would unlock untold innovation. It's been fascinating to watch this space rediscover the reasons that the regulations were created in the first place. One of the interesting questions for me is the extent to which the space will start to self-regulate. Once an investment type develops a bad reputation, it can be very hard to recover. That's why major stock and commodities exchanges are serious about regulating participants, and can be much more stringent than governmental regulators. Contrast, for example, the way investors feel about NYSE or NASDAQ stocks, versus the penny stock market, which is rife with scams. [1] Based on the history so far I'm not optimistic. But maybe they'll turn it around. [1] https://en.wikipedia.org/wiki/Microcap_stock_fraud https://en.wikipedia.org/wiki/Microcap_stock_fraud
- nikcub 9y ago> It's been fascinating to watch this space rediscover the reasons that the regulations were created in the first place. I've found that ICO's are almost identical to OTC pump and dumps - they're much less sophisticated versions of the same thing Opportunities that are marketed as investments first, products second. Website homepages that resemble the "investors" section of ordinary website with no actual "product" presence. Vague products in markets that are easy to obfuscate or fake. Affiliations that can be purchased. High profile board members or investors who can be purchased. Social media footprint where people talking about the stock outnumber customers, etc. If you've spent any time in Yahoo! message boards or Seeking Alpha looking at the hundreds of reverse-IPO's and pink sheet startups you'll recognize all of the same scams (and some of the same names! cough McAfee cough-cough)
- TheSpiceIsLife 9y agoI'm only a casual observer of the financial realm, and thusly hadn't heard of a reverse-IPO. A reverse takeover or reverse merger takeover (reverse IPO) is the acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public. 1. https://en.wikipedia.org/wiki/Reverse_takeover https://en.wikipedia.org/wiki/Reverse_takeover
- Kyragem 9y agoThese ICOs are bad for the value of ETH, often millions are raised and then dumped the next day.
- omarchowdhury 9y agoBut the Ethereum based tokens that do succeed will be a net benefit for ETH, since ETH is required for the smart contracts that govern those tokens to operate.
- erikpukinskis 9y agoVolume is great for Ethereum. If you ignore speculative value, and long term savings value, Ethereum's value is pegged to the float required for its pure transactions. If they are transacting a billion dollars a week in ICOs, and the typical ICO user holds for 6 months, then that puts a floor on ETH at $24B. That's $24 billion of real value. As valuable as $24B of petroleum, so long as there keep being ICOs... even if none of them are worth anything.
- joosters 9y agoEthereum was an ICO too. Perhaps the SEC will be visiting Vitalik soon...
- noddy1 9y agoIn addition to these blatantly fraudulent ICO's, I contend that even the "legitimate" ICO's are a total shitshow. It's not that they raise far too much money for their projects (although they do), its just that without equity in the company performing the ICO you simply don't get alignment of incentives. Guys like Juan Benet talk about this utopian fantasy of coins funding open-source protocols, but think about the reality. A legitimate project raises 15-45million dollars with a stated intention. Even being well funded, it is still highly speculative, and most startups "fail". So the team raising money has 2 options. Spend the entire amount trying to get the protocol going - which will probably fail (as most projects do), or have a half-hearted go at getting the protocol going, and keep the rest of the money - a 100% chance of getting comfortably rich, but further decreasing the already small odds of the project succeeding. If the protocol/token model is so good, then companies can launch a token and use that to feed profits back to equity-holders. There is no reason why investors should have to take their chances on some made-up instrument that puts an extra barrier between their interests and those of the founding company.
- alexasmyths 9y ago+1 And you're just scratching the surface.
- Taek 9y agoSame is true for startups, except that startup funding carries fiduciary responsibility. If you are not spending money in the best interests of the investors, they can sue you. Current token sales waive this responsibility, but investors should demand that it is there.
- vkou 9y agoThey would, if any of them were interested in going long. That they don't leads me to believe that most of them are just doing short-term speculation.
- howwwe 9y agoThis one sounds bad, but the problem with the Howey test is that it's overly broad. Anything from presales in a Kickstarter to ICANN selling those new domain names (like .attorney) to selling tickets to a yet-to-be-arranged event could all be considered a security under the Howey test. It's just too broad and nobody knows where the SEC will draw the line. It would be good for everyone if the SEC would simply explain on what would make a ICO legit, because currently their guidance is still too unclear. It's like they want the ability to selectively prosecute anyone, not caring that the regulatory uncertainty is keeping legitimate, risk-adverse teams away, which doesn't help.
- omarchowdhury 9y agoThey did say what would make an ICO legit: proper registration with the SEC.
- KGIII 9y agoHas any company tried to do proper registration with the SEC? If so, we're they successful? I just hit up the mighty Google and it was interesting, but not helpful. Search terms 'ICO proper registration SEC' yields some interesting results, including some stuff that I'm not sure made HN, but doesn't reveal any companies that have done so or tried to do so. I'm not suggesting this, but I bet the first one that properly registers with the SEC (even if it fails horribly and was bordering in scammy) would make a mint. The tag line of 'Officially sanctioned by the SEC' would go a long ways, even if it was doomed (intentional or otherwise) from the start. Again, that's not a suggestion to make something meet the bare minimal requirements, register, and then make a killing.
- everdev 9y agoI spent 30min on the phone with Mark Vilardo, special counsel at the SEC and the guy who will call you if you all questions about ICOs. Basically, ICOs are 99% of the time classified as securities in the US. The main exception is if the token is non-transferrable or can be returned for what you paid for it. So, if you can't make money selling our trading it, it's not a security, which defeats the purpose of an ICO. It sounds like who the SEC goes after is subjective, but at any point in time they could bring a suit against an ICO, even gimmick coins.
- colechristensen 9y agoMy followup question is, if exchanging World of Warcraft gold for currency was supported or facilitated by Blizzard, would the SEC classify it as a security? Could Blizzard have an ICO for WoW gold that could only be used as it is now with no attached ideas of selling equity?
- omarchowdhury 9y agoThey would classify it as a security if they could conclusively prove that people were buying WoW gold "for the expectation of profits solely from the efforts of a third party or promoter."
- everdev 9y agoDoesn't have to be wide spread. Even one investor complaining they thought they were going to make money is enough to satisfy the test. However, the SEC will probably only act in cases of high dollar value or many complaints.
- laser 9y agoIs that really how the law is technically phrased? I doubt it. You're telling me that if Jose does an ITO (Initial Taco Offering) to open his new taco joint, selling 1000 tacos to anyone that wants to eat one, and I complain to the SEC that I thought Jose's tacos would be worth more if I resold them tomorrow, then his tacos fail the Howey Test and are classified as securities? Obviously that's not the case, but are you saying that's only due to selective SEC enforcement, not because the law has a higher standard than "Even one investor complaining they thought they were going to make money"?
- wav-part 9y agoWrong Headline. SEC has not charged with fraud rather than with violating anti-fraud and registration provisions. Since almost no ICO implement anti-$FCRIME provisions, even honest ICO can be charged similarly.
- paulie_a 9y agoIf the ICO is US based and not complying with the law it is not honest.
- komaromy 9y agoHow far does that go? If an Uber driver goes over the speed limit on the highway, are they not honest?
- lovich 9y agoLegitimately yes they are being dishonest. When you get a license you are telling the government you know the laws and will abide by them. Whether a law that nearly 100% of the population ends up violating is a good law is a different discussion.
- wav-part 9y agoLooks like I am wrong. SEC are also charging with fraud. https://www.sec.gov/litigation/complaints/2017/comp-pr2017-185.pdf https://www.sec.gov/litigation/complaints/2017/comp-pr2017-1...
- hardwaresofton 9y agoWhy is the SEC so fast to target initial coin offerings but terrible at actually reining in the financial sector. To be fair I don't know a ton about the inner workings of the street, so maybe I've just consumed one too many movies/articles/whatever but it seems like the SEC is a just handing out slaps on the wrist over there.
- omarchowdhury 9y agoYou don't know the inner workings of the street, so why do you think it's fair for you to say the SEC is doing a terrible job reining in the financial sector?
- hahla 9y agoYou're a shill account and it's obvious.
- deleted 9y ago[deleted]
- hardwaresofton 9y agoBecause things like the financial crisis of 2008 happened? Because as far as I know the SEC hasn't introduced any sort of uniform fiduciary standard for financial advisors? While I don't know the inner workings of the street, everything I see seems to point to the SEC not doing enough to penalized well-established players, and is allowing a culture in which firms do their best to not get cauhgt/apologize for transgressions rather than follow the law. Maybe it's just that my news sources are biased, but I try and vary them and pick generally considered good publications (when it's written form at least). It seems objectively difficult to find anyone that's going to say the SEC is doing a great job at reining in the financial sector -- so my question stands, why are they doing such a good job at reining in ICOs, using tech that's barely understood by the general populace (though it's probably easy to spot how scummy they are), and in an absolutely new regulatory landscape?
- 9y ago
- thisisit 9y agoHere's the site for: ReCoin - https://101recoin.com/en https://101recoin.com/en DRC - https://drc.world/en https://drc.world/en Couple of things which are noticeable first up are: a. ReCoin at least attempts to appear legit by having a "team". DRC doesn't even do that. b. While some (most?) ICOs do not have a convincing reason for using ethereum or blockchain, this one takes the cake. The only reason for using blockchain is..well because "blockchain". c. The sidechain is called "Altcoin" for Recoin. DRC doesn't even get that mention. On looking through the whitepaper for DRC, there is a mention of the sidechain but nothing on site. So DRC site looks like a rush job when compared to Recoin ;) d. Quite a lot of coins avoid SEC by kinda of ensuring they are not shares in something but paying for an unreleased product. They also try and mention that coins don't have an explicit real world value. But DRC and RECoin do neither of these. e. These guys are based out of US, so quite easy for SEC to take action too. Devil is in the details. It will be interesting to know how the complain landed on SEC's desk.
- vecinu 9y agoThat video on DRC's website is absolutely ridiculous. It almost seems a parody of itself. They also spelled their name as "Diamond Reserved Club" but on the website it's "Diamond Reserve Club" (noticed the extra d).
- seibelj 9y agoAll big ICO's are through Switzerland and only allow accredited US purchasers if they allow US at all. SEC will kill the next decade of technology companies and let the EU take it over unless they issue clear guidance like the Swiss. You can apply to FINMA for $15k CHF and go through a standard process to be a verified token. Would love that in USA. After Brexit, expect more ICO's in the UK as well (Funfair is a good example) as they try to do anything possible to boost their economy. Fact: crypto currency will be a mechanism for fundraising startups. Either deal with it or stick your fingers in your ears.
- wmf 9y agoYou make it sound like VCs and CoinList don't exist.
- seibelj 9y agoI am well aware, but YC is extremely anti-ICO as is HN, so I am trying to communicate reality to the general commenters here.
- omarchowdhury 9y agoYou'd think HN would be pro-ICO, but there's too many people here with sunk costs in the VC paradigm.
- QAPereo 9y agoTo which this quasi-legal shitshow of a shell game is the solution?!
- omarchowdhury 9y agoCompare the time to liquidity and global access between VC investments and tokens, and you'll see its the beginning of a solution. But you all would rather see it trampled before being optimized for the benefit of all, for some reason.
- thinkcomp 9y agoDocket: https://www.plainsite.org/dockets/36kxb8b9n/new-york-eastern-district-court/united-states-securities-and-exchange-commission-v-recoin-group-foundation-llc-et-al/ https://www.plainsite.org/dockets/36kxb8b9n/new-york-eastern...
- mgalka 9y ago1. The amounts raised so far are small, a few $100k. That's tiny compared to what ICO lose in hacks. 2. These are not high tech crypto startups, as most ICOs are. This is some guy selling diamonds. The text from the website sounds ridiculous and makes no sense. > "By acquiring at least 1 DRC you will claim the membership in the exclusive Diamond Reserve Club (DRC) with privileges such as access to the blockchain transactional databases" A non-event for ICOs
- austenallred 9y agoThe SEC deciding that coins fall within its jurisdiction is anything but a non-event. They’re picking lowest hanging fruit, but it shows they’re willing to regulate the space.
- cma 9y agohttps://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_co...
- josh2600 9y agoThese are really bad ICOs (even calling them that is weird because of how bad they are). I think other ICOs aren't likely to succeed for other reasons, but I could say the same thing about most startups. I think it's obvious that an ICO is a more-entrepreneur friendly financing path when compared to really almost any other capitalization method. That doesn't mean it's the right answer, but it is obviously the path that an entrepreneur should choose right now if they can. This is because ICOs are the cheapest cost of capital of any funding source available today. I am not good at predicting how the SEC will act, but I expect this action is a good thing over all. If people think twice before doing an ICO it feels like a step in the right direction. I do think there are some company narratives that make sense as an ICO, but maybe that's just survivorship bias. It's really too early to tell in the lifecycle of crypto. In short, I think ICOs are the cheapest cost of capital so doing one makes sense right now. That might not always be true, which may or may not be a good thing depending upon your perspective. I think it's nice to see some action from the SEC that's clearly aligned with the interests of the public.
- alexnewman 9y agoObviously we don't know all the facts about these particular ICOs but otherwise this is great news. By going after the least famous, it really shows the SEC is trying to pro business. I expect some sell off in the market from the panic but it's good news for the ETH
- elnygren 9y agoWell it was about the damn time! A lot of ICOs are borderline (or just straight) scams. There have been even cases where the ICO funds have been "stolen" but rumours say the founders just took the money and ran. A lot of the so called "products" and "businesses" pitched by these ICO companies are just well known already working models somehow forced into the blockchain with the only reason being the ability to do an ICO (and generate an absurd amount of money for the founders). Another common feature of ICOs: there's never any equity on the table. The founders are gonna cash in on the ICO and then later do an exit (sell the company, IPO, whatever). ICO "investors" are not gonna get much for their money here. At least during the dotcom bubble some companies made it and the investors then got real equity for their money.
- kenbaylor 9y agoThat's by design. If there's equity or promise of profits, it automatically trigger the 'it's a security' lever. The SEC DAO paper (linked below) acknowledges the same. Your point that many are 'forced into the blockchain' to get an ICO is 100% correct.
- CryptoPunk 9y ago>>That's by design. If there's equity or promise of profits, it automatically trigger the 'it's a security' lever. That is not true. There are other components to the Howey Test besides expectation of profit. The DAO was one of the most security-like token issued so far, and the DAO investigative report went over how the SEC believed it met all the conditions for classification as a security. Securities laws might not apply to a great many other tokens.
- KGIII 9y agoThe whole thing is just a ball of insanity. I'm not sure what it is about cryptocurrency and ICOs, but it seems the representation is heavily populated with insane people. I will recommend reading this sub-thread: https://news.ycombinator.com/item?id=15369840 https://news.ycombinator.com/item?id=15369840 Now, there is someone bragging that they are intentionally and willfully going to break multiple laws. They are already breaking laws, so they are also going to break some SEC regulations. They think that being nice is going to keep them from going to prison. On top of this, they are posting about it in an open forum. They quite happily admit their criminal acts and intent to commit more. If you're curious, their profile has more information. I'm no psychiatrist and a few Internet posts aren't enough to diagnose someone, but I'm pretty sure they are crazy. Not 'so crazy they might just get away with it' crazy, but 'should seek professional care' crazy. Also, a lawyer... They should also seek legal council. I'm not sure if it is the ICO and cryptocurrency that attracts crazy people, but it seems to have strong correlation. It may just be the cryptocurrency?
- redm 9y agoThis is very similar to the .com bubble in the late 90's. Everyone wanted to get in, there was massive FOMO, and there were legit businesses along with scams, and terrible ideas. There will be a reckoning at some point, but the tech is here to stay. I invest in ICO's that have the focus, vision, and team to build something lasting.
- Animats 9y agoIt looks like the SEC is starting with the worst scammers. They've also been phoning up ICO promoters, and having a little talk about what's a security. CoinMarketCap lists values for 265 known tokens.[1] The biggest market cap is OmiseGo, for which a market cap of over $1 million is claimed. As far as I can tell, owning an OmiseGo token lets you do absolutely nothing. As a joke. someone did an ICO of the Useless Etherium Token. It's totally worthless. They tell you that up front. They raised $95K.[2] [1] https://coinmarketcap.com/tokens/ https://coinmarketcap.com/tokens/ [2] https://uetoken.com/ https://uetoken.com/
- CryptoPunk 9y ago>>As far as I can tell, owning an OmiseGo token lets you do absolutely nothing. You know very well that the value of OmiseGo tokens is based on the token-compatible platform they have said they are developing, and not what can currently be done with the tokens. Leaving out this point is disingenuous.
- Animats 9y agoIt's not clear that their own platform gives value to their own tokens. They talk about wallets on their platform holding BTC or ETH.[1] Their own token mostly funds them. [1] https://cdn.omise.co/omg/whitepaper.pdf https://cdn.omise.co/omg/whitepaper.pdf
- CryptoPunk 9y agoIt's absolutely clear, given the plan is to make OMG the staking token used for securing the OmiseGo sub-chain. It's right there in the abstract of the white paper: >>It uses the mechanism of a protocol token to create a proof-of-stake blockchain to enable enforcement of market activity amongst participants. It's no crime to be ignorant of a subject. It's intellectually dishonest to criticize projects while in such a state.
- Obi_Juan_Kenobi 9y agoImportant typo, 'million' should be 'billion'.
- thinkinmachine 9y agoBitcoin's a bubble and ICO's are a scam. I feel for those whose hard earned IRAs are being invested in these.
- amazingman 9y agoGood. This further legitimizes crypto currency as a legitimate environment for creating fully-functional markets.