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Can Initial Coin Offerings Be Regulated As Securities? The SEC Says Yes.

August 29, 2017 by Alexander J. Davie

investors exchaging cryptocurrencyRecently, there has been a lot of buzz involving so-called “Initial Coin Offerings” (ICOs), which are crowdfunded offerings powered by distributed ledger technology (a.k.a. “the blockchain”), which is also the technology behind cryptocurrencies, such as Bitcoin. Instead of selling equity, companies that use ICOs sell digital “tokens” to investors. These tokens entitle the holders to certain rights, such as the right to a portion of the future cashflow of the company or voting rights. Unlike a traditional legal contract, the rights of token holders are not enforced through courts but rather through software code (also called “smart contracts”). Although the ICO concept has gained traction very quickly and allowed various companies to raise over a billion dollars’ worth of digital currency directly from investors, many have suspected that ICOs, like their IPO counterparts, involve the issuance of securities; however, until recently, the Securities and Exchange Commission (SEC) had not yet weighed in.

On July 25, 2017, the SEC, in order to “caution the industry and market participants,” released an investor bulletin highlighting the risks of an ICO for investors and publicized an in-depth investigative report on a recent ICO that the SEC determined involved a sale of securities. [Read more…]

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Filed Under: Startups and Venture Capital Tagged With: Initial Coin Offerings, Recent, Recent Startups, SEC, Securities

About the editor

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Strictly Business is a business law blog for entrepreneurs, startups, venture capital, and the private fund industry. Its editor is Alexander J. Davie, an attorney at Riggs Davie PLC based in Nashville, Tennessee. His practice focuses on corporate, securities, and business law. He works mainly with technology companies, including startups and emerging companies, and private equity, venture capital, and hedge funds.
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