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I am a co-founder in the cryptocurrency space. Our lawyers were smart and advised us against releasing a utility token ICO because they predicted that these SE
by deweller 9y ago
I am a co-founder in the cryptocurrency space. Our lawyers were smart and advised us against releasing a utility token ICO because they predicted that these SEC actions would be coming.
Our approach to "get around" this is to file all the necessary paperwork for a legal security and then only sell the token to accredited investors.
- IncRnd 9y agoDid they discuss Title IV of JOBS with you?
- homakov 9y agoWhat are the steps and costs to do same? Who is accredited investors btw?
- tptacek 9y agohttps://www.sec.gov/files/ib_accreditedinvestors.pdf https://www.sec.gov/files/ib_accreditedinvestors.pdf Generally: earning over 200k/yr, or having a net worth over 1MM excluding your house.
- komali2 9y agoWait, and people are arguing that this process isn't an arbitrary class lock out?
- tptacek 9y agoI don't know what "class lock out" means, but the restriction is pretty obviously there to prevent people from staking their livelihoods and financial futures on unvetted offerings. The idea is that people who have high incomes or high net worths (a) either are financially sophisticated, or can trivially afford financially sophisticated advisors, and (b) are unlikely to be staking so much on a single deal that their long term outcomes will be at risk.
- komali2 9y agoHow do you correlate existent material wealth with any of your claims? What's to stop an inheritor from making a poor investment with all their capital? Or a lottery winner? Or ANYBODY with that kind of money, really? Why is it presumed that at "arbitrary net worth 1 million," a person is "financially sophisticated?" If the sec wants to I guess "protect people from themselves," why don't they have an actual certification system that is based on a demonstration of knowledge? Finally, why aren't people with a net worth of under 1 million protected from other poor financial decisions, since in your mind they are not "financially sophisticated" and thus are more likely to engage in payday loans or other predatory financial institutions?
- tptacek 9y agoActually, I agree that the RegD numbers are arbitrary. They should be much higher: they haven't tracked inflation. A person with 200k in annual income in 2017 is by no means necessarily in a position where they can safely invest in securities that have exempted themselves from disclosure requirements to their investors.
- DennisP 9y agoOn the other hand, someone with $150K income and $800K net worth can easily afford a $5K investment, and is probably sophisticated enough to not be completely stupid about it. It makes more sense to use percentages rather than a fixed cutoff (and in fact that's what the JOBS Act does).
- tptacek 9y agoAnd, in fact, even if you make $50k a year, you can invest up to low-thousands in RegCF regulated issuances, or even more in a Reg A+ mini-IPO issuance. By and large, the entities pursuing 8-figure ICOs are those that (a) don't want to spend $10,000-$20,000 to engage with the SEC and adhere to their disclosure rules, and (b) aren't credible enough to raise from accredited investors. What's crazy to me is the notion that a business venture that can't scrap together $20,000 should somehow obviously be entrusted with $15,000,000 of retail investor money.
- whataretensors 9y agotldr; 10000% returns are limited to club members only
- tptacek 9y agotldr; exemption from SEC disclosure laws that protect investors of all classes are limited to club members only.
- Alex3917 9y ago> Our approach to "get around" this is to file all the necessary paperwork for a legal security and then only sell the token to accredited investors. How does this square with the SEC commissioner's statement yesterday that not a single ICO has registered to do a security offering?
- Kubuxu 9y agoBy requiring all investors to be accredited you are exempt from the long registration process with SEC. The law in question is "Rule 506(c) of Regulation D", see: https://www.sec.gov/fast-answers/answers-rule506htm.html https://www.sec.gov/fast-answers/answers-rule506htm.html
- deleted 9y ago[deleted]
- sillysaurus3 9y agoCan you give a brief checklist (or notes, or anything at all) regarding the necessary paperwork? What's involved?
- 52-6F-62 9y agoSo basically, follow the existing law that governs securities and investments. I personally don't see a big problem with that, considering the laughable scams that have occurred over the past six months. I am curious, though, how that works with proposed international investors. (I'm not well educated in the financial space) I hope that these actions clear house of the scams, and open room for good projects to exist without some shade of doubt cast over them—at least not for the reasons there exists some kind of shade now.
- gst 9y ago> I hope that these actions clear house of the scams Wouldn't the scams just get launched from other countries that don't have to care about the SEC?
- thrill 9y agoJust like the valid entrepreneurial efforts will.
- abritinthebay 9y agoSure, and they’ll join Nigerian Email Scams where they belong
- erikpukinskis 9y ago> I personally don't see a big problem with that It protects the monopoly the investor class has on investments like these.
- indubitable 9y agoThis also deters entrepreneurship from otherwise less established entities. The risk with regulations like this is that in attempting to keep out the scammers, you also end up keeping out smaller by otherwise completely authentic entities. In the worst case you end up keeping out smaller players, yet the scammers find creative ways around the system. Take, for instance, patents. They were initially envisioned as a way for independent inventors to ensure their ideas were not stolen. But a century of absurdly complex rules and regulations paired with extreme fees mostly keeps out very small scale inventors. On the other hands, the scammers are seemingly as active as ever and completely inappropriate patents are still regularly granted. So what have we truly accomplished?
- dangero 9y agoBut how are you going to make the coin available for liquid trading in the future?
- s73ver_ 9y agoCan I ask why you'd still go ahead with a token after all that, instead of doing a normal security? With all the same reporting and other regulations as a security, what does being a token get you?
- subroutine 9y agoYou mean, exactly like authorized shares of common stock? How is this any different than traditional corporate capitalization? Did you set aside a large pool of tokens for a potential investor who prefers convertible equity? A reserve for an option pool? How will employee stock options..erm..sorry..'token options' plan work? If your company is successful, and a great offer comes up to exit, what's the plan for M&A using tokens? Most importantly, why would investors want coin over stock? Are they given all the same legal company equity rights as traditional stock?
- deleted 9y ago[deleted]
- Nursie 9y agoYeah that doesn't sound so much a workaround as it does "doing things properly"
- cptaj 9y agoWhat I don't like is the "accredited investors" part. That just means its going to be just as hard as getting stock which is prohibitive to a lot of investors in the world.
- Lazare 9y agoIt's slightly sad - and quite funny - that "following the law" is seen as a novel, intriguing approach that can set you apart from the competition. :)
- dreit1 9y agoIs this possible? Hold ICO, sell like 5% to accredited investor. The rest is reserved for team. Sell 35% on the open market at a fixed price.