SEC clarifies when initial coin offerings are securities


In two moves highly praised by those in the cryptocurrency and blockchain communities, the U.S. Securities and Exchange Commission Wednesday issued guides for initial coin offerings while also issuing it’s first “no-action” letter for a company wanting to go down the ICO path.

The guidelines, formally “Framework for ‘Investment Contract’ Analysis of Digital Assets” has the SEC breaking down when and where tokens issued in an ICO are considered securities subject to relevant regulation.

Primarily referring to the Howey test, a test established by the Supreme Court in Securities and Exchange Commission v. W. J. Howey Co. in 1946, the document includes examples of tokens that fall under securities laws, as well as other ICO-related offerings that do not.

Among the factors the SEC considers as to whether an ICO is a security include an expectation of profit, whether the token relates to the achievement of a future product and whether the ICO is creating or supporting a market for a digital asset.

On the same day, the SEC also shared a “no-action” letter it sent to TurnKey Jet Inc., a Florida-based short-term corporate jet leasing company.

The SEC, in response to a letter from TunkKey Jet’s lawyers, said that they would take no action against the company should it proceed with an ICO but only depending on a long list of restrictions.

Those restrictions include that the tokens be set at a fixed amount, that any money from the ICO not be used to build or develop services for the company and that the tokens not be publicly tradable.

Although the restrictions were praised by the those in the cryptocurrency community, they essentially have the SEC saying ICOs are fine as long as they are the equivalent of gift certificates.

“The issue most coin offerings undertaken to date will face is that they possess many elements common to products that, in the past, courts have found to be security-like,” lawyer Preston Byrne told CoinDesk. “Although the no-action letter is a new development, I don’t see it creating a viable issuance pathway within the United States for the crypto-token products most enterprises are hoping to build.”

The SEC first ruled that ICOs could be securities back in July 2017, later updating that advice in 2018 to note that cryptocurrencies aren’t necessarily securities but most token offerings are.

Photo: AgnosticPreachersKid/Wikimedia Commons

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