SEC Bulletin on The DAO and Crypto ICOs - Concludes Many are Securities, Subject to Federal Securities Laws
Many folks will remember The DAO attack last summer that drained the then largest Ethereum smart contract of millions of dollars.
After nearly a year of investigation, the Securities and Exchange Commission in The United States has today, July 25th, concluded the following:
The SEC's Report of Investigation found that tokens offered and sold by a "virtual" organization known as "The DAO" were securities
According to promotional materials, The DAO would earn profits by funding projects that would provide DAO Token holders a return on investment.
The SEC will set a strong precident going forward for future initial coin offerings in the United States; token sales like this are securities and as such are subject to the SEC's jurisdiction.
Though after determining this, the SEC has concluded they will not to need to proceed with any legal charges in The DAO case:
In light of the facts and circumstances, the agency has decided not to bring charges in this instance, or make findings of violations in the Report, but rather to caution the industry and market participants
But aside from non-intervention in this case, they caution the market to be careful and give notice they would like to help foster and grow the market:
The SEC is studying the effects of distributed ledger and other innovative technologies and encourages market participants to engage with us," said SEC Chairman Jay Clayton. "We seek to foster innovative and beneficial ways to raise capital, while ensuring – first and foremost – that investors and our markets are protected.
It is clear from their report is that the SEC intends to be watching, however, for the time being they will continue to leave the market to its own devices.
Do you believe they made the right decision? Post your answers in the comments below and hit the vote button.
The complete statement on The DAO can be found at the SEC's website here as press release 2017-131.
The full and detailed 18 page report on The DAOsaster that accompanies this release can be found here on the SEC's website as well.
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IMO this means that any entity offering something deemed to be a "security" will now either need to refuse US investment or will have to comply with the 1933 Securities act & 1934 investment act This essentially means that they will need to only accept "qualified investors" and will need to structure the entity with the help of lawyers to provide mountains of paperwork to sign by the investor.
^ That is the most probable case, I agree @bitcoinsig.
Expect that most ICOs going forward will be explicit in their whitepaper about their non-security status.
This may open the door to more regulated coins with more institutional investors though, best to be optimistic, the SEC was kind in their statement about the crypto market space.
I wonder if they grasp what Ethereum devs did to correct that theft? By creating ETH they essentially doubled the amount of ETH by creating ETH and ETC. So whomever has stolen that 50 million got away with it because ETC is still traded on the open market. Now BItcoin Cash (BCC) wants to do the same for BTC even though both are trading now at different prices on the open market. They are not going to fork BTC on Aug. 1st because they already have with BCC, am I the only one that sees the fraud here? If you buy a digital apple from me and I replicate it before giving it to you have I given you anything that I do not have? No, I still have a digital apple, now you do too, but I also now got your money. Check out Uetoken.com
While it may seem like you'd have less at first, you're really getting two apples, both of which (in ETH & ETC case) have a much greater total value seperately.
Many people held ETH through the split and kept the ETC they were given or sold it immediately. The total value of the two chains today is more than 10x what it was at the time of the split. ETC's market cap alone is worth more than the original ETH in 2016.
It's not bad news, if you hold BTC through the fork you will have both coins which you can sell or hold. Here's an article I wrote about how to profit from the split just yesterday:
Profit From The Bitcoin Cash Split
Thank you for the great input @lucklight :D
i think we see further regulations in crypto markets in near future. In Europe EZB has already an eye on it but plays it down currently.
I suspect regulation will help bring in new money for growth and smooth out volitility, even if it is not that appealing right now.
Yep, think of these times like the Wild West, like the internet back in the 1990s.
This is really nothing to be worried about. The SEC does not have the infrastructure to investigate cases in which a token may be considered a security or not. Nor is the legislation in place for them to prosecute offenders for issuing a "security" that might legitimately be considered to be something that is not a "security".
So who would be accountable for a Dao?
The Ethereum Foundation handled the attack in a manor that was acceptable to the SEC last year.
Vitalik Buterin and his team forked the Ethereum chain and refunded the users the Ether (ETH) that they contributed to The DAO smart contract (although it had lost value in USD).
For those who didn't approve of this decision, they maintained their stake via the Ethereum Classic chain.
The investment banks on Wall Street don't like competition, so they sent the errand boy of theirs who runs the SEC to SHUT IT DOWN
"Walter J. "Jay" Clayton III is an American attorney and Chairman of the U.S. Securities and Exchange Commission!.
At Sullivan & Cromwell, Clayton was co-managing partner of the firm's General Practice Group. He specialized in mergers and acquisitions transactions and capital markets offerings[3] and represented prominent Wall Street firms, including Goldman Sachs.[5] He served as an adviser to numerous companies regarding issues related to the Federal Reserve, SEC, Department of Justice and other agencies.
He has also helped multiple corporations raise money through initial public offerings, including Alibaba Group,[7] Ally Financial, Och-Ziff Capital Management, Oaktree Capital Management, Blackhawk Network Holdings, and Moelis & Company."