Following the investigation of The DAO, the SEC issued an Investors Bulletin, which explained the nature of the Initial Coin Offering and warned public that some of the tokens issued on blockchain could be securities required to comply with the U.S. securities law.

The SEC provided key points to consider when determining whether to participate in an ICO or not, such as:

— Check if the tokens are registered as securities and their offering is performed in compliance with the U.S. securities laws and regulations;
— Check if the promoters of the tokens are licensed or registered to offer and market securities, if the offered tokens are securities;
— Ask if the blockchain is open to public and whether it has been independently audited;
— Verify the facts and use good judgement when the offer is too good to be true;
— Be aware that digital tokens and currencies may be susceptible to fraud, technical glitches hacks, or malware.

The SEC also warned that the recovery could be limited for multiple reasons.

Unfortunately, there have been many ICOs performed in violation of the U.S. federal and state securities laws. The token buyers should be very careful when they are offered to invest in tokens and to expect a profit, when sale of such tokens is not registered with the securities authorities.

Written by Katrina Arden
Attorney and founder of Blockchain Law Group