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USA: allegations of unregistered securities in Initial Coin Offering.

BIScom Subsection: 
Nigel Morris-Cotterill

One would have thought that Initial Coin Offerings had been a flash in the pan and already out of fashion. And that may, to a point, be so: their heyday was, of course, three or four years ago.

But the essential problem seems to be that things take a while to filter through so that, when stories reactivate interest, everything old becomes new again, to coin a phrase. So the news that a case relating to conduct in 2017 and 2018 may be the spark that reignites burning embers as some people remember the concept of the ICO and think "that might be a way to help my business that's struggling through the CoVid-19 Pandemic.

John Wise has a profile at LinkedIn in which he says "Too many inventors ‘reinvent a wheel.’ "

His entry with regard to Loci says "founder/ceo Jan 2014-Dec 2019". He also lists "co-founder Digital Asset Trade Association" (Jan 2018 to present) and since June 2019, "product and investment analyst" at "W.I.S.E. (Wisdon, Innovation, Strategy and Execution)" in New York where he is "Consulting Entrepreneur with a focus on product, design, and innovation strategy. Expertise in consumer products, physical product design, cryptocurrency, blockchain, machine learning, and multi sided marketplaces."

That seems the typical career path for a small businessman that the SEC takes to task: trying hard to find employment under a cloud. The consequences of such actions are far, far greater than appear on the face of a press release from the SEC and, moreover, depending on exactly what the SEC means about the ban as a director and officer, his life, even after paying the penalty, is not going to get easier.

Why, at the top of this article, did we say that the decision was made "retrospectively." It's because US law operates on the basis of saying "you can do what you like unless and until we tell you otherwise." In a codified world, if the code doesn't say "no" then the default setting is "yes."

In the case of ICOs, they were not, initially, considered to be securities. No one decided what they were but they were not securities. So the default setting was "go ahead." This is not to say that the SEC is wrong in saying that an ICO that seeks to tie its value to the performance of business should be considered to be a security. It appears not to have argued that the portfolios were a regulated asset class (perhaps mindful of the dangers of linking it with CDOs) but that would be a valid point.

The important thing to recognise is that Wise and Loci simply jumped aboard a bandwagon and in doing so overstepped the boundaries of permissible representation in a time when almost everything was a grey area. That one, it was inevitable, would soon fall under the clear light of common sense and it did. It's easy to say how it might not be foreseen by those who have more interest in the tech than in the niceties of securities law.

And that's a huge lesson.

Further Reading
Let's have an ICO ....
Malaysian regulator orders Fintech Company to abandon ICO

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