The Securities and Exchange Commission (SEC) issued a very important Investigative Report
today, concluding that the securities law of the United States applies to the sale of tokens through the Initial Coin Offering (ICO).
The SEC investigated the virtual organization “The DAO,” which sold tokens earlier last year raising an astonishing amount of $168,000,000 in return of offering a share of the profit to the token purchasers, and determined that the tokens issued by The DAO on blockchain were in fact securities. And, as such, their sale had to comply with the registration procedures established by the U.S. securities laws unless the appropriate exemption was claimed.
The importance of this SEC’s Report of Investigation for the ICO industry is very significant. While previously most of the market participant thought of it as an unregulated field, where companies were selling tokens without any legal compliance, it is apparent now that sale of tokens is regulated by the securities laws and, therefore, subject to registration compliance applicable to the Initial Public Offering (IPO).
However, not all tokens are securities. Their nature largely depends on the rights and benefits that tokens provide to the token holders. As indicated by the SEC, whether a particular transaction involves the offer or sale of securities would depend on the facts and circumstances, including the economic realities of the transaction.