The SEC Says ICO’s May be Subject to U.S. Securities Laws

SEC warns issuers of Initial Coin Offerings (ICOs) that they may be subject to securities laws.

Whether an ICO is subject to securities laws will depend on the facts and circumstances of the offering.

SEC determines NOT to take action again the ICO of the Decentralized Autonomous Organization (DAO).

Many ICO tokens may not meet the SEC’s definition of a “security”

The Lowest Cost. Period.

The SEC Warns on ICOs – Takes NO Action

Buy Gold And Silver Coins

SEC Says DAO Tokens are Securities, Brings No Action

The U.S. Securities and Exchange Commission (the “SEC”) issued a press release and an investigative report today warning generally that offers and sales of digital assets by “virtual” organizations or initial coin offerings (ICO’s) are subject to the requirements of the federal securities laws. The report noted, however, that “whether a particular investment transaction involves the offer or sale of a security – regardless of the terminology or technology used – will depend on the facts and circumstances, including the economic realities of the transaction.”

The Registration Requirement for Securities

The SEC is the U.S regulatory body that oversees securities offerings. According to the Securities Act of 1933 (the Act), whenever a security is offered, a registration statement containing enumerated disclosures must be filed with the SEC, unless an exemption from registration is available and claimed by the issuer.

The filing of a registration statement is an expensive an arduous task that involves disclosing financial and other material information about the company and the security it intends to sell. The registration statement, which includes a prospectus or offering document, gets reviewed multiple times by the company’s internal and external lawyers, the company’s bankers and the SEC staff. At the end of the process the SEC, if satisfied, declares the registration statement effective and sales of the securities can begin.

If the registration statement contains any untrue statements of material fact or omits to state material facts, the issuer may be liable to the purchasers of securities issued pursuant to the registration statement and the officers and directors of the company subject to crimminal liability.

There are exemptions from the registration requirements of the act. These include forms of “private placements”, or small offerings to qualified instutional investors and/or a limited number of accredited individual (rich) investors. Generally due to potential liability and investor’s ability to demand full disclosure, many private placement documents contain nearly the same information that as a registration statement’s prospectus.

What is a Security?

The definition of a security is found in Section 2(a) of the Act and reads

(1) The term ‘‘security’’ means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share,investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a ‘‘security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

Initial Coin Offerings that involve issuing tokens to participants may not meet the Act’s literal definition of securities. Indeed, when deciding whether purported security falls under the Act’s definition of “security” and therefore subjects the issuer to the registration requirements of the Act, an important factor is whether such investment instrument gives the holder an ownership interest in the company issuing such investment instrument.

In a Supreme Court case, SECURITIES AND EXCHANGE COMMISSION v. W. J. HOWEY CO. the court held in finding that a land sales contract under which the defendant took possession of land suitable for growing oranges sold to investors, farmed it and distributed a portion of the profits to the investors was indeed a security and not a land sales contract, noting “Form was disregarded for substance and emphasis was placed upon economic reality.”

Today’s SEC investigative report took note of Howley and included the language that the economic realities of the transaction would be considered in determining whether an ICO is a securities offering subject to the registration requirements under the Act.


In the SEC’s investigative report it noted that the DAO, an unincorporated organization; UG (“”), a German corporation;it’s co-founders; and intermediaries may have violated the federal securities laws.

The SEC described the DAO as follows

The DAO was created by and’s co-founders, with the objective of operating as a for-profit entity that would create and hold a corpus of assets through the sale of DAO Tokens to investors, which assets would then be used to fund “projects.” The holders of DAO Tokens stood to share in the anticipated earnings from these projects as a return on their investment in DAO Tokens.”

The SEC also concluded that the DAO tokens WERE securities but decided not to take action. If the SEC determined that the DAO tokens WERE securities and were not registered as required under the ACT and there was no available exemption, it would seem DID violate securities, rather than MAY have violated the law.

Perhaps the SEC took this seemingly contradictory point of view because it was not certain that a court would agree with their determination that the DAO tokens were securities.

The issue of deeming DAO’s tokens as securities and therefore subject to the registration requirements of the Act is problematic because in most cases DAOs are not owned by any one entity or group of entities or individuals but rather are software running on a blockchain.

Token holders in ICOs often have no ownership interest in the companies and therefore the tokens may not be properly deemed to be “securities”. Even with the assistance of the language in Howley whereby the economic realities of the transaction are considered, if no ownership interest is granted, it may be difficult to claim a security is being offering in an ICO and therefore subject to SEC purview and the registration requirements of the Act.

What’s Next?

ICOs Are a Threat to Silicon Valley and Wall Street

The initial public offering process is a cash cow for Silicon Valley venture capital (VC) firms and Wall Street bankers and lawyers. The VCs and bankers control which companies go public and receive vast amounts of capital in the process, while making great fortunes themselves acting as gatekeepers. Unregulated ICOs are an existential threat to the IPO market as they by pass Silicon Valley and Wall Street completely.

If ICO’s are not subject to SEC oversight, they may continue unabated and the nominal value raised in such offering continue to grow exponentially. Rather then bring an enforcement action, which the SEC declined to do so today, they may ask Congress to give it broader authority to regulate ICOs specifically. If the SEC gains regulatory control of ICOs, then too will the bankers, VCs and their lawyers who currently lead IPOs.

Longer term, such a regulatory structure may bring even more money in to the cryptocurrency space.

Donate To via paypal

Please consider making a small donation to Thanks!

Sign Up For Updates Here!

Donate To via paypal

Check out all the Smaulgld podcasts here.

Please consider making a small donation to Thanks!

You can buy Bitcoin, Ethereum and Litecoin through Coinbase.
Click HERE to open a coin base account and get $10 of free Bitcoin.*

Buy American Gold Eagle Coins

You can compare pricing and shipping charges on American Gold Eagles coins of all sizes at these web sites:
Golden Eagle Coins
SD Bullion
Money Metals Exchange

Compare American Silver Eagles for sale at:
Golden Eagle Coins
SD Bullion
Money Metals Exchange

Buy American Silver Eagle Coins

If you have enjoyed this report, please consider sharing it, buying your precious metals through the Smaulgld affiliates linked to on this site* and subscribing (for free) to

Please consider making a small (or large!) donation to Thanks!

Get Free Updates From

Subscribe to and get the free In Case You Missed Itweekly email as well as updates and analysis on gold, silver, real estate and the economy.

Also get the free report “Twelve Key Differences Between Gold and Silver” when you subscribe.

Subscribe to to receive free gold and silver updates, news and analysis.

Please visit the Smaulgld Store for a large selection of recommended Kindles, books, music, movies and other items.

You can support by making all your Amazon purchases through the search widget below and by ordering your gold and silver by clicking on the BGASC, Money Metals Exchange, Gold Broker, Golden Eagle Coin, GoldMoney, SD Bullion and Canadian Mint ads on the site.

Browse Silver Coins on Amazon

Buy Silver Austrian Philharmonic Coins

Browse Collectible Coins on Amazon

*DISCLOSURE: Smaulgld provides the content on this site free of charge. If you purchase items though the links on this site, Smaulgld LLC. will be paid a commission. The prices charged are the same as they would be if you were to visit the sites directly. Please do your own research regarding the suitability of making purchases from the merchants featured on this site.

Disclaimer: Information presented here has been obtained from third parties and is presented for information purposes only. Smaulgld can not and does not guarantee the accuracy or timeliness of the data displayed on this site and therefor the data provided should not be used to make actual investment decisions. You should always consult a professional investment adviser before investing in precious metals or any type of investment. You acknowledge that Smaulgld assumes no responsibility for the integrity of data on this site.

The content provided here is for informational purposes only. Making investment decisions based on information published by Smaulgld (SG), or any Internet site, is not a good idea. Accordingly, users agree to hold SG, its owner and affiliates, harmless for all information presented on the site. SG presents no warranties. SG is not responsible for any loss of data, financial loss, interruption in services, claims of libel, damages or loss from the use or inability to access SG, any linked content, or the reliance on any information on the site.

The information contained herein does not constitute investment advice and may be subject to correction, completion and amendment without notice. SG assumes no duty to make any such corrections or updates. As with all investments, there are associated risks and you could lose money investing. Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of that investment. SG disclaims any and all liability relating to any investor reliance on the accuracy of the information contained herein or relating to any omissions or errors and as such disclaims any and all losses that may result.

Post Navigation