HCBA Lawyer Magazine Vol. 28, No. 3 | Page 62

the seC’s reguLation of iCos begins with howeY Securities Section Chairs: Rob Jamieson – Wiand Guerra King & Matthew Schwartz – Cole Scott Kissane those looking to conduct iCos need to be counseled thoughtfully on proceeding with legally sound I investment structures. nitial Coin Offerings (ICOs) provide extraordinary amounts of start-up funding, primarily to developers of blockchain infrastructure and applications. By some estimates, ICOs collectively raised over $2 billion through October 2017. A few ICOs raised more than $100 million dollars with little more than white papers, websites, and marketing campaigns. Expectedly, the SEC stepped up its oversight of ICOs this summer with the aim of ensuring investor protection against fraudsters, who are emerging in the booming ICO market. Because of regulatory uncertainty, in early 2017, many start-ups running ICOs refrained from allowing U.S.-based investors to participate and many continue to avoid the regulatory uncertainty by restricting token sales in the U.S. An ICO involves the sale of coins or tokens issued and exchanged on distributed ledger technology, often referred to as a blockchain. Put simply, a distributed ledger consists of a ledger or database shared and synchronized across many participants in a digital network, providing for decentralized, independent verification of each transaction effectively to a mathematical certainty. Bitcoin, the first cryptocurrency, introduced the blockchain. Ethereum then issued a blockchain-based token with its own unique protocol and programming language integrated into its Ether token. By introducing these “smart contracts” — contracts programmed in software and executed on a blockchain — Ethereum fueled the governance and execution of ICOs on the Ethereum blockchain. Guidance from the SEC regarding ICOs starts with whether WILL SEARCH - MARY FRANCES HALL Anyone with information or custody of an original or copy of a Last Will and Testament of Mary Frances Hall. PLEASE CONTACT: A.T. Cooper, III, Attorney at Law 1230 Myrtle Avenue So., Suite 102, Clearwater, FL 33756 [phone] [email protected] WILL SEARCH: MARY FRANCES HALL 60 © Can Stock Photo / dolgachov a coin or token is a security under the Howey test, with specific attention focused on the token offered by a now-defunct digital entity known as DAO, or Decentralized Autonomous Organization. The SEC issued an investigative report in July 2017, 1 confirming that the DAO token was a security under Howey. 2 The DAO tokens were issued to raise funds to invest in other blockchain projects. The SEC took no action against DAO, but expectedly confirmed Howey as the applicable analysis for determining whether a coin or token is a security. The SEC notably added that coins and tokens are not presumed to be securities and a determination that they are will depend on the facts and circumstances of the coin or token sale. The key prong of Howey considers whether acquiring Continued on page 61 LAWYER MAGAZINE ADVERTISING Do you have office space for rent or conducting a will search? Consider advertising in the Lawyer magazine. Contact Stacy Williams at [email protected]. JAN - FEB 2018 | HCBA LAWYER