A couple days ago, I stumbled across a blog post of the Colony.IO project[2], who are creating a token and blockchain platform for distributed organizational management (coincidentally similar in concept to the DAO). They go into detail about their plans for having an ICO only once they have a product actively functional. The hopes are that with a working product, people buying the tokens will do so with the expectation that it is a sale of services, rather than an investment security. Now, their perspective is that of the team and their lawyers, and not necessarily that of the SEC. But if there is hope that ICOs won't all be securities, I think that is the pathway.
[1] https://www.bloomberg.com/view/articles/2017-07-26/tokens-va...
[2] https://blog.colony.io/the-colony-token-sale-7ac14c845bc0
If you're referring specifically to Colony.io, then I have no idea. I just read their blog post.
I enjoy working on the crypto for the project, but I concern myself with the eventual legalities of the ICO and how it might change the companies incentives internally.
I have bills to pay, leaving on principle alone isn't viable for me, but, if it could impact on my family, I will.
I am not a lawyer, and the answers don't appear to be black and white.
It is in my opinion that any US-based ICO is now in a lottery as to whether they get the SEC visit.
Not legal advice at all, just sharing an excerpt from a coffee chat.
Not sure why this isn't discuss more, but Erik Vorhees was fined for not registering as a security back in 2014: https://www.sec.gov/news/press-release/2014-111
Although it was just fines, not worth the exposure just for merely operating an above-board business. With SEC now having Cyber Unit, in theory their regulating now increases.
An unqualified read of 4 would count digital pokemons as securities. The effort has to be in the active management of the enterprise, and most of the profit has to come from this management - as you'd see in someone running a business - for the investment to be deemed a securities transaction.
In the case of Pokemon, or cryptocurrency, most of the value comes from the activity of the users.
If a bookmaker offers you a $500 bet that your house won't catch on fire this year, what is the difference in both intent and outcome?
The law is a fickle beast.
And if 4ths is big enough in your plan so you can't even argue it doesn't play a role, then you probably have a shitty business plan, I'd argue. The profit of course should come from selling some service or product.
However if I created a coin the possession of which entitles you to a cut of my bitcoin mining operation, yes that would be a security.
You could make the case that Bitcoin main valuation is from the network efect, so other people buying and using Bitcoin increases the value of your Bitcoin.
Under the Howey Test, a transaction is a security (or investment contract) if:
1. It is an investment of money
2. There is an expectation of profits from the investment
3. The investment of money is in a common enterprise
4. Any profit comes from the efforts of a promoter or third party
Based on their recent cyber division being announced, there is seemingly a strong possibility of review/conviction if launching an ICO as a US citizen, no? Soliciting an unregistered security carries 20yr prison term. Are dev's factoring this as possible risk?