Could the Securities and Exchange Commission Kill ICOs?


By Andy Gordon Editor’s Note: Today’s article comes from Andy Gordon, co-founder of Early Investing.

Along with his business partner Adam Sharp, he recently launched Crypto Asset Strategies, a research service devoted to the most profitable opportunities in alternative cryptocurrencies. Click here to learn more.

Cryptocurrencies are flying high. Initial coin offerings (ICOs) have already raised a record-breaking $3 billion-plus this year.

But a few weeks ago, as my plane circled over LAX and prepared to land, I was curious…

Was the crypto community overconfident? Was there going to be an obnoxious level of self-congratulatory backslapping at the conference I was invited to?

I was about to find out.

StartEngine held its ICO 2.0 Summit in Santa Monica, California, last month.

I was going to hear a dozen and a half ICO pitches… and was hoping to walk away with one or two that captured my interest.

(As it turns out, I did find one… a potential recommendation. It’s an exciting investing opportunity that addresses a gigantic market in an extremely clever way.)

As I feared, there was a little too much cheerleading. No one mentioned a day of reckoning. “A bubble? So what?” was a comment that neatly captured the mood of the conference.

But, to this particular crowd’s credit, these people weren’t totally oblivious to some of the issues casting a shadow over the crypto space.

Their biggest worry? The U.S. Securities and Exchange Commission (SEC), followed by the possibility that crypto is in a bubble.

Here are some of the more interesting comments I heard on these and other areas of concern…
What Will the SEC Do?
Several lawyers I talked to mentioned a big clue that SEC Chairman Jay Clayton gave just two days prior to the conference.

During unscripted remarks in the middle of a speech at the Institute on Securities Regulation in New York, he said, “I have yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security.”

While some disputed the legal basis of what Clayton said, the lawyers I spoke to at the conference mostly agreed it’s a strong sign as to which way the SEC is leaning as far as ICO regulation is concerned.

(This gets into the legal weeds about what qualifies as a security, an issue that deserves its own post. I’ll be writing about that soon in my free e-letter, Early Investing.)

If, as feared, the SEC rules that digital coins are actually securities and thus subject to securities regulations, it will make ICOs more complicated and expensive.

Sara Hanks, the CEO of CrowdCheck, said that ICO entrepreneurs should think very carefully about doing an ICO outside of a security designation.

“Even if you have a ‘Plan B’ to revise the legal status of your ICO after the fact, if the SEC says they’re a security, you’d be going down a very expensive path,” Hanks cautioned.

As for the “no harm, no foul” point of view? Hanks pointed out that “a lot of consumer complaints would trigger fed action.”

“The SEC doesn’t hate tokens, but it does hate fraud,” she said.

With consumer complaints on …read more

Source:: Investment You