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SEC v Tomahawk: “Free” ICO tokens constitute a sale of securities

9 points by davidgerard 8y ago

CryptoPunk 8y ago
The act in question was not an "airdrop". It was a bounty (payment to parties in exchange for services rendered). The tweets in response to the original tweet further criticize the interpretation that this means airdrops are securities: https://twitter.com/cablecarcapital/status/1029438811300753408?s=19 https://twitter.com/cablecarcapital/status/10294388113007534...
- davidgerard 8y ago
  [author here] yes, that's a good thread. yeah, it's not nailed down that airdrops would count as sales. But (a) that ICOs are securities in the US (b) that "gift" securities for promotional purposes, were obvious and not news at all to outside observers really very early on (which is also a theme of that Twitter thread); it was only crypto people who thought playing semantic games made any difference. As I say in the article, I’d be amazed if the SEC wasn’t looking into nailing that one down too - because airdrops are done as a promotional tool. Put it this way - good evidence against airdrops counting as a sale would be if airdrop-like distribution of non-crypto quite-definitely-securities had been clearly found not to be sales. If you know of any such, that'd be super-useful.
  - CryptoPunk 8y ago
    Yea the SEC administrative order includes quite an Orwellian redefinition of "sale", that attempts to expand its scope far beyond what people commonly understand the word to mean: >Rather, a “gift” of a security is a “sale” within the meaning of the Securities Act when the donor receives some real benefit. and >Tomahawk received value in exchange for the bounty distributions, in the form of online marketing including the promotion of the ICO on blogs and other online forums. Tomahawk also received value in the creation of a public trading market for its securities. See Sierra Brokerage, 608 F. Supp. 2d at 940 (“where a ‘gift’ disperses corporate ownership and thereby helps to create a public trading market it is treated as a sale”). The latter, "Tomahawk also received value in the creation of a public trading market for its securities", justification, is alarming. It appears the SEC's definition of a sale is any issuance that benefits the issuer by any means, which is inconsistent with what 'sale' means in standard English, which is an exchange of a good/service for money. The SEC is going beyond just defining a barter exchange (the "bounty" provided in exchange for promotional services rendered) a sales transaction, to considering even none-exchanges as sales transactions. By the SEC's unbound definition, a charitable issuance of securities that brings goodwill and thus value to a brand would be a sale.
    - davidgerard 8y ago
      > quite an Orwellian redefinition of "sale" but a definition that has cites to where they won in court with said argument, which I think does back them up on this one in any practical sense. Disputing this would require a win in court against said precedent, or a new law.
      - CryptoPunk 8y ago
        Yes, it's very well possible that they have a strong legal case - I haven't looked into the precedent they cited. The problem I'm alluding to the administrative order's definition of a 'sale' - whether that definition stems from statute or precedent, or one they constructed just for this case - which doesn't conform to the common definition of the term, leading to a situation where the public is given a naive impression of the scope of the law that is not in accordance with its real scope. This mis-impression is the Orwellian aspect of it.

9 points by davidgerard 8y ago

The act in question was not an "airdrop". It was a bounty (payment to parties in exchange for services rendered). The tweets in response to the original tweet further criticize the interpretation that this means airdrops are securities: https://twitter.com/cablecarcapital/status/1029438811300753408?s=19 https://twitter.com/cablecarcapital/status/10294388113007534...

davidgerard 8y ago
[author here] yes, that's a good thread. yeah, it's not nailed down that airdrops would count as sales. But (a) that ICOs are securities in the US (b) that "gift" securities for promotional purposes, were obvious and not news at all to outside observers really very early on (which is also a theme of that Twitter thread); it was only crypto people who thought playing semantic games made any difference. As I say in the article, I’d be amazed if the SEC wasn’t looking into nailing that one down too - because airdrops are done as a promotional tool. Put it this way - good evidence against airdrops counting as a sale would be if airdrop-like distribution of non-crypto quite-definitely-securities had been clearly found not to be sales. If you know of any such, that'd be super-useful.
- CryptoPunk 8y ago
  Yea the SEC administrative order includes quite an Orwellian redefinition of "sale", that attempts to expand its scope far beyond what people commonly understand the word to mean: >Rather, a “gift” of a security is a “sale” within the meaning of the Securities Act when the donor receives some real benefit. and >Tomahawk received value in exchange for the bounty distributions, in the form of online marketing including the promotion of the ICO on blogs and other online forums. Tomahawk also received value in the creation of a public trading market for its securities. See Sierra Brokerage, 608 F. Supp. 2d at 940 (“where a ‘gift’ disperses corporate ownership and thereby helps to create a public trading market it is treated as a sale”). The latter, "Tomahawk also received value in the creation of a public trading market for its securities", justification, is alarming. It appears the SEC's definition of a sale is any issuance that benefits the issuer by any means, which is inconsistent with what 'sale' means in standard English, which is an exchange of a good/service for money. The SEC is going beyond just defining a barter exchange (the "bounty" provided in exchange for promotional services rendered) a sales transaction, to considering even none-exchanges as sales transactions. By the SEC's unbound definition, a charitable issuance of securities that brings goodwill and thus value to a brand would be a sale.
  - davidgerard 8y ago
    > quite an Orwellian redefinition of "sale" but a definition that has cites to where they won in court with said argument, which I think does back them up on this one in any practical sense. Disputing this would require a win in court against said precedent, or a new law.
    - CryptoPunk 8y ago
      Yes, it's very well possible that they have a strong legal case - I haven't looked into the precedent they cited. The problem I'm alluding to the administrative order's definition of a 'sale' - whether that definition stems from statute or precedent, or one they constructed just for this case - which doesn't conform to the common definition of the term, leading to a situation where the public is given a naive impression of the scope of the law that is not in accordance with its real scope. This mis-impression is the Orwellian aspect of it.