U.S. Securities Laws Could Apply To ICOs, According To SEC

The Securities and Exchange Commission has said that U.S. securities laws could be applicable to ICOs, following a recent spate of activity in the market for these offerings.

The body, which is responsible for ensuring the rules regarding access to capital are upheld, reached the conclusion following its own investigations into the topic, as part of investigations into the DAO, a fund that spectacularly collapsed last year due to coding issues.

Its report found that DAO tokens were in fact a form of security, and their offering should have fallen under the remit of applicable laws.

While the SEC holds the power to prosecute, it has chosen instead to use the report to highlight the risks to the market, as well as to warn participants about the extent of their obligations in future.

The news follows a recent explosion in ICOs, or initial coin offerings, where businesses raise capital by issuing tokens of value on the blockchain — essentially like creating their own digital currencies like bitcoin and ether.

Investors have been keen to show their support for ICOs so far, with hundreds of millions being raised so far across some of the more well publicized ICOs to date.

However, unlike traditional securities, ICOs seem to still operate in something of a legal gray area, a factor in the ongoing efforts of regulators to develop workable models for oversight.

According to the agency’s findings, ICOs would fall under the scope of current securities regulation.

“The Commission deems it appropriate and in the public interest to issue this Report in order to stress that the U.S. federal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale.”

Stephanie Avakian of the SEC’s enforcement division went further, suggesting that the shape of the technology should have no bearing on the legal definition of the asset class.

“The innovative technology behind these virtual transactions does not exempt securities offerings and trading platforms from the regulatory framework designed to protect investors and the integrity of the markets.”