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MOR
Jul 28, 2017 · 2 min read

20 ICO Tips by Marco Santori @msantoriESQ

1/ As many thoughts on the SEC announcement as I can squeeze in on this flight to a client meeting. Here goes...

2/SEC said yesterday that the Howey test (in most cases) is the correct test for what tokens are securities. See https://t.co/zO9PhTcqCp

2\ The Howey test is highly fact-specific. Not all tokens are securities.

3\ Many tokens are securities. Those that ICO and return revenue/profits to investors are almost certainly securities.

4\ Hiding out in Switzerland (Estonia, Singapore, Mars) won't exculpate you from the US securities laws. SEC has long-arm jurisdiction.

5\Exchanges trading security tokens are liable as securities exchanges if they list tokens that happen to be securities for US users

6\ Investors that buy securities tokens are subject to securities laws too (securities fraud when reselling, qualified custodianship, etc.)

7/ Fascinating: Ether is probably *not* a security, despite being sold to the public in an ICO. SEC called it a currency.

8\ Exchanges should consider auditing their assets and delisting tokens at risk of being securities.

9\Issuers shouldn't issue tokens that pass the Howey test. This is admittedly a complex analysis and tall decision tree.

10\Investors should only buy securities tokens if they are comfortable with the bizarre consequences of hodling them and reselling them.

11\Just as important is what SEC *didn't say* about tokens. Frankly, what it didn't say is much more important than what it did.

12\ SEC didn't say that *only* DAO-like tokens are securities. Anything passing the Howey test = security. Not all things that fail aren't.

13\ SEC has *still* not opined on the real issues: Whether utility tokens are securities, and: Are pre-functional utility tokens securities?

14\ DAO tokens were obviously securities. Uninteresting conclusion. More interesting: Are private currency tokens? Are use-or-lose tokens?

15\ SEC's approach here was a very different approach than FinCEN's approach in 2013 to MSB issues.

16\ FinCEN took a snapshot of the industry in 2013 and attempted a comprehensive rules-based taxonomy. It hasn't aged well.

17\ SEC's approach is much more measured. Less guidance for the industry (sad). More flexibility for better policymaking (good!)

18\SEC didn't say what is and isn't a security. They just said this thing (DAO) is a security and others could be too.

19\ On balance, SEC's ruling yesterday wasn't a line in the sand. It was a shot across the bow of this industry. Maybe a starting gun shot.

20\ I think the future is bright for non-securities tokens. This is the first step in a critical maturation process.

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