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SEC Says Initial Coin Offerings Are Subject to Federal Securities Laws

In a statement issued by the U.S. Securities and Exchange Commission (“SEC”) today, the regulator says that digital tokens sold through initial coin offerings (ICOs) are securities and therefore subject to United States federal securities laws.

The regulatory agency says that companies conducting ICOs must register their offerings and sales of such securities unless valid exemptions apply.

Additionally, the agency warned that individuals participating in unregistered offerings could be subject to civil or criminal penalties.

An investigative report subsequently issued by the agency today specifically cited the Solar DAO ICO in which the investment fund raised capital through the issuance of DAO digital tokens.

While DAO has described the issuance as a crowdfunding contract, the SEC in its report disagreed and says the DOA raise would not have met requirements for a crowdfunding exemption.

"Investors need the essential facts behind any investment opportunity so they can make fully informed decisions, and today's Report confirms that sponsors of offerings conducted through the use of distributed ledger or blockchain technology must comply with the securities laws," said William Hinman, Director of the Division of Corporation Finance.

Added Stephanie Avakian, Co-Director of the SEC's Enforcement Division:

"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.”

The official SEC statement and full report can be found at www.sec.gov.

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