Even the SEC realizes that not all token sales are securities. Some people in the industry simply aren't getting it, they are creating a straw man which the agency isn't even arguing for.
> The agency said that it would focus on coins that should be categorized as securities.
So there are all these people on the periphery just HOPING for their prophecy of a heavy handed government breaking the cryptocurrency rush.
They read the headlines.
They create the headlines.
They purposefully don't read the SEC report or consider any information to the contrary of what they are expecting.
Despite S.E.C. WARNING? This is an article about everyone getting smarter and restructuring their offering where necessary, and continuing to move forward.
Even the WARNING in the SEC's DAO report two weeks ago acknowledged that not all token offerings were securities. But detractors and regulated entities with a legitimate reason to be skittish, used it as the WELP SHOW'S OVER GUYS argument which is completely unfounded.
> Nick Morgan, formerly a lawyer in the S.E.C.’s enforcement division, said that the security label was likely to apply to any coin that an investor buys with the expectation that it will increase in value as a result of the efforts of the entrepreneurs who created it.
The SEC still answers to the courts, and this consolidation of capital will allow these new organizations to take it to the courts efficiently. The Howey test from the 1940s did not consider this kind of asset to ever exist. It isn't an end all be all, it is a test.
The SEC is not mandated by Congress to undermine interstate commerce, it is created to provide confidence. So far, they've been playing it smart.
"To me, it seems odd that people would pay millions of dollars to reserve space on a new cloud storage network, and obvious that they're really paying that money for a speculative investment."
"If you do an illegal securities offering, people who bought your securities have a right to get their money back. If token prices keep rising everywhere, this is not a big concern -- why would anyone want their money back when they have such valuable cloud storage? But if the ICO mania fades, expect a lot of lawsuits from investors who are shocked to learn that they were buying unregistered securities."
Everybody and their brother with a soundboard has stated an opinion about ICOs and the SEC guidance. Literally anyone influential has said something and if they haven't, expect them to say it tomorrow.
The gradient of opinions is just as abstract as the weeks before.
It would be a mistake to take that as canonical just because you respect that particular entrepreneur's non sequitur criticism of existing token sales. When the argument is that not all token sales are securities offerings, not even the SEC has made that mistake, and the argument is that new token sales don't have to be securities offerings, but they can be too.
Here is what the SEC will never get: they will never get investor protection from this asset class. Their entire regulatory framework is around that.
Congress can modify the SEC's mandate to support this. Congress can create a completely new agency and regulatory framework to provide for more applicable confidence and protections in this asset class.
The SEC will never ever ever use the Securities Act of 1933 and the Securities Exchange Act of 1934 as currently written to ensure a fair market of all cryptographic token issuances.
> The SEC will never ever ever use the Securities Act of 1933 and the Securities Exchange Act of 1934 as currently written to ensure a fair market of all cryptographic token issuances
If the SEC categories an asset as a security, it has rule making powers over the trading of those assets provided an American buys or sells the asset, inadvertently or not. Many respected lawyers and lawmakers, as well as the SEC, say many ICOs look like securities.
Note that coins offered in ICOs being securities isn't a death knell to the concept. Just to the scammy elements of the market.
Disclaimer: I am not a lawyer. This is not legal nor securities advice. Don't be a dummy and treat Internet comments as anything but casual banter.
> Many respected lawyers and lawmakers, as well as the SEC, say many ICOs look like securities.
Yes, this is the crux of everything I've said, primarily that "many" has nothing to do with whats possible. Whether a future token sale chooses to register as a security or is completely exempt from securities frameworks because it is a product.
> Whether a future token sale chooses to register as a security or is completely exempt from securities frameworks because it is a product
The "many" I refer to are the people get to decide, legally, whether it's a security or a product. The polite thing for the SEC to do would be to announce a new rule. The less polite route, though still completely legal, would be to prosecute under the Acts in an SEC court [1].
Off-topic, sorry: Levine gets a lot of praise around here, and he does have a great talent for breaking down complex finance topics so that they're easy to understand and often entertaining to read about. That being said, sometimes he is awfully sanguine about bank misconduct and crimes. Edit: from the article:
"A bank that keeps very careful track of how much money it has, and who owes it money and whom it owes money, and sometimes does evil stuff with that knowledge -- that's fine, really."
It's his trademark sarcasm, and the subtle hilarity is one of the reasons I read his daily newsletter. That quote requires more context:
You're supposed to know where the money is! That knowledge and reliability is the central function of the bank; getting the dumb spreadsheets right is more important than moral probity. A bank that keeps very careful track of how much money it has, and who owes it money and whom it owes money, and sometimes does evil stuff with that knowledge -- that's fine, really. A bank that sometimes forgets who owes what to whom is the real menace.
That's an unfair quote, taken completely out of context. His articles frequently cover fraud and illegality in the financial markets, and he's never in favour of it.
The quote in question was pointing out how bad the latest Wells Fargo scandal is. A bank that can't keep track of money is in serious trouble and is woefully incompetent. The banks ripping off customers but accounting for the profits are evil, but at least they are being competent.
I think even with the broader context it doesn't sit right with me, because he could have easily made the completely serious and valid point about banks needing to be competent at their core functions without characterizing "doing evil stuff sometimes" as "fine". Totally possible that my sarcasm detector is broken right now but it seems like he's "only half-joking" here (another of his favorite phrases).
It looks like around 90% of ICOs are securities and "restructuring" them to not be securities would probably make them unprofitable and thus pointless. The only way for most ICOs to comply with SEC regulations is to not exist.
while simultaneously reaffirming that regulated broker-dealers can trade securitized tokens that are properly registered bringing trillions of dollars into the crypto space overnight when TD Ameritrade and ETrade starts trading these.
> This is an article about everyone getting smarter and restructuring their offering where necessary, and continuing to move forward
The article specifically states "only three projects have said they are canceling or postponing the sale of coins because of the warning." It's not a doom and gloom article. It's just saying the vast majority of ICOs are (a) probably noncompliant and (b) doing nothing about it.
> the SEC still answers to the courts
The SEC is an independent agency [1]. Congress delegated to it the Congresses' powers to make rules in and around securities with the Securities Act of 1934, as amended [2]. Courts grant agencies, like the SEC, wide rule-making authority [3]. In any case, the SEC "answers to" the courts in the same way the Congress does.
> the SEC is not mandated by Congress to undermine interstate commerce
The SEC is a creature of the federal government. Its specific jurisdiction is interstate commerce. In fact, one way to get around some SEC rules (though not all--consult a lawyer before doing something stupid) is to exclusively conduct your business within a single state.
If you read the Securities Act of 1933 there are TONS of ways to get around SEC rules. And as such I think your intrastate offering idea is a red herring, but I'll entertain you:
Did you know that anything that is super obviously a security can be completely exempt if it matures or expires in less than 270 days? Its written right there. Turns out there is a huge market called "commercial paper" that takes advantage of this specifically. I personally had no idea about it until I read the law itself.
And there are lots of exemptions. Most of them are completely impractical for most of us.
> Did you know that anything that is super obviously a security can be completely exempt if it matures or expires in less than 270 days?
The United States is a common law country [1]. Implicitly stapled to the law are rulings and SEC rules. TL; DR There are more requirements to the commercial paper exemption than just the 270-day tenor.
That said, you are generally correct–there are lots of exemptions to registration. For example, Regulation D provides a safe harbor within which almost all private-company stock is issued [2]. The trouble with ICOs, currently, is promoters seem to be overusing this "we're marketing a product, not a security" line. As a result, they're not taking advantage of these exemptions. Failing to qualify for an exemption is a difficult mistake to undo ex post facto. (The Filecoin ICO mentioned in the article does take advantage of one such exemption.)
> Disclaimer: I am not a lawyer. This is not legal nor securities advice.
Look, we know. Only armchair financial enthusiasts use those disclaimers, and you've made it painfully obvious and its a bit contrived.
Federal Reserve regulation D is not the SEC's regulation D that you talked about.
Regulation D is not an applicable exemption, neither is Filecoin's use of it, because the secondary markets where people are inevitably going to trade them have to be registered broker dealers to legally trade things that admit they are securities. Unlike private equity, there is nothing that functionally prevents people from trading cryptographic tokens, so it is better for now that the tokens themselves make sure they are NOT securities, not just 'exempt securities'. No matter what Filecoin did, there is still a major infrastructure problem that threatens to hamper all liquidity in this space, unless tokens are structured as products and distinct from the securities market.
We've been here before. The SEC tried to regulate commodities. The SEC tried to regulate commodities futures and commodities options. The SEC thought they were covered under the wording of the Securities Act of 1933 but ultimately that just made no fucking sense for commerce. So the people of this country and the representatives thereof created the CFTC.
And yet again, the SEC's frameworks makes no sense for this market, where assets can functionally be like a security, like a commodity, and like a currency simultaenously.
A new framework isn't out of the question. For new services and sales that happen to use cryptographic tokens, being unambiguously a product isn't out of the question. Being unambiguously a security isn't out of the question.
> Look, we know. Only armchair financial enthusiasts use those disclaimers
No, anyone that doesn't want to be legally liable.
If the other person could reasonably believe they have gotten legal advice, or a client-attorney relationship was establishes, then you might be liable.
Before you say that this would be ridiculous to assume on an internet forum, be advised that many lawyers nowadays have websites, blogs, allow starting a client-attorney relationship over a public question board, and such situations on Reddit have existed before.
Disclaimer: I am not an attorney, this is not legal advice.
It is still ridiculous. Just because some lawyers take on clients over the internet doesn't mean that you need to say 'I am not a lawyer' every time you discuss a legal question online. I have never seen a case of someone being successfully (or even unsuccessfully) sued for pseudonymous, general online legal commentary.
> Regulation D is not an applicable exemption, neither is Filecoin's use of it, because the secondary markets where people are inevitably going to trade them have to be registered broker dealers to legally trade things that admit they are securities
Filecoin appears to be using Rule 506(c) of Regulation D, a § 4(a)(2) exemption. Also, you don't need to be a broker-dealer to issue, buy or sell unregistered securities. (You do need to be one if you're doing those things with others' securities [1].)
> The SEC tried to regulate commodities.
Commodities-trading regulation predates the SEC by over a decade [2]. Every time securities law were written, commodities laws were rewritten [3][4] to explicitly carve commodities out from securities laws. Both agencies compete in the swaps market, due to their shared jurisdiction over securities-based swaps [5][6], but there are deeper reasons behind the CFTC's independence than it making "no fucking sense for commerce." (The short answer has to do with geography and the competing power centers of New York and Chicago.)
> A new framework isn't out of the question
I agree. But it will probably take an act of Congress to do this. In the meantime, some promoters are violating the law.
in your grandparent post, you are still linking the Federal Reserve's deposit insurance regulation, while talking about the Securities Exchange Commission's exempt securities offering regulation.
Classic strawman, I wasn't claiming Regulation D required anyone to be a broker dealer to issue buy or sell an exempt unregistered security. The claim is that reselling it freely requires you to go through or be a broker dealer, unless all buyers are accredited investors.
We've come full circle to the article's point. Barring an act of the Congress, most ICOs are conducting themselves in a way that is, under current law, illegal.
> The agency said that it would focus on coins that should be categorized as securities.
So there are all these people on the periphery just HOPING for their prophecy of a heavy handed government breaking the cryptocurrency rush.
They read the headlines.
They create the headlines.
They purposefully don't read the SEC report or consider any information to the contrary of what they are expecting.
Despite S.E.C. WARNING? This is an article about everyone getting smarter and restructuring their offering where necessary, and continuing to move forward.
Even the WARNING in the SEC's DAO report two weeks ago acknowledged that not all token offerings were securities. But detractors and regulated entities with a legitimate reason to be skittish, used it as the WELP SHOW'S OVER GUYS argument which is completely unfounded.
> Nick Morgan, formerly a lawyer in the S.E.C.’s enforcement division, said that the security label was likely to apply to any coin that an investor buys with the expectation that it will increase in value as a result of the efforts of the entrepreneurs who created it.
The SEC still answers to the courts, and this consolidation of capital will allow these new organizations to take it to the courts efficiently. The Howey test from the 1940s did not consider this kind of asset to ever exist. It isn't an end all be all, it is a test.
The SEC is not mandated by Congress to undermine interstate commerce, it is created to provide confidence. So far, they've been playing it smart.