SEC Finds Securities Laws Apply To Some Initial Coin Offerings

Businesses are increasingly using Initial Coin Offerings to raise capital – and the U.S. Securities and Exchange Commission has taken an interest. The commission recently issued a report concluding the coins offered in a high-profile ICO last year were in fact securities. The report serves as a warning to those using distributed ledger or blockchain technology to facilitate the raising of capital about the need to comply with securities laws. Typically, if a coin is merely a prepayment for services or products, the coin would not be deemed a security. However, if the coin represents a right to revenue or profits from a project or company, or a right to acquire a security or money on a specified event, it is likely a security. If the coin is a security, then either the coin needs to be registered with the SEC or an exemption from registration must be found, as is the case with any other security. Exemptions include Regulation Crowdfunding and Regulation A+. If the coin is meant to create a virtual currency, then anti-money laundering laws and money transfer laws likely apply. Read more.