SEC and the ICO dilemma

Jina Kim
Jina Kim
Jul 27, 2017 · 2 min read

The great depression (1929) led to the Securities Exchange Act of 1933.

Section 5 of the Securities Act of 1933 says it’s illegal to trade in securities for which no registration statement has been filled.

For 84 years, the term “security” was never a subject of confusion.

Until now.

On July 25th, 2017 — under section 21(a)of the Securities Act of 1934, “the Commission applied existing U.S. federal securities laws to this new paradigm, determining that DAO Tokens were securities.”

This is a historical event. The one that defined a new paradigm.

Companies that issue ICOs now must file a S-1 form which is an initial registration form for new securities for public companies. Any security that meets the criteria must have an S-1 filing before shares can be listed on an exchange. Form S-1 requires companies to provide information on the planned use of capital proceeds, provide a prospectus of the planned security itself, offering methodology and other disclosures.

The SEC also requires the disclosure of any material business dealings between the company and its directors and outside counsel. Investors can view S-1 filings (Edgar) to perform due diligence on new offerings prior to their issue.

Basically it means more legwork for start ups, more scrutiny. This is the reason why most start ups don’t want to go public.

It looks like ICOs with Swiss entities for transactions won’t be able to bypass this new rule since the securities are sold in the US.

What does this all mean?

Companies can stay private. Do private ICO offerings.Under Regulation D, the exemption is available for private companies for private placement of securities. Generally offering is limited in size.

Coins and Tokens will be considered restricted stock. Investors would have to hold it for a year which may not be ideal. But if the investors truly believed in your company, why wouldn’t they stay with you for a year?

In any case, I’m glad the SEC is finally looking at cryptocurrencies. This will flush out the market and we can move on to removing trusted intermediaries. Why do we need banks anyway? If you want to know how banks are screwing us all, read this.

Jina Kim

Written by

Jina Kim

Former investment banker turned Client Success Expert, Employee #4 @ Carta

Philosophies of a Start Up woman

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