
SEC tightens the noose on ICO-funded startups - ilanhz
https://decryptmedia.com/2018/10/10/sec-tightens-the-noose-on-ico-funded-startups/
======
Animats
The SEC seems to be sorting the list of ICOs by level of criminality and size,
and working down the list. First they went after the ones which were large,
obvious, out and out criminal enterprises. As in [1], or "they really didn't
have the real estate and diamonds they said they had." And [2], or "they
really didn't have deals in place with PayPal, Boeing, and Disney".

Then the SEC went after the ones that were merely flaky. As in [3], or "a
blockchain based food review service with in-app purchasing of tokens". This
actually got going, not that anybody used it much. They hired a "YouTube
influencer" and claimed “199% GAINS on MUN token at ICO price! Sign up for
PRE-SALE NOW!”

Along the way, the SEC found some ICOs from the usual suspects in the penny
stock market. Those got shut down.

Then they started sending out letters along the lines of "Hello, ICO promoter.
What you're doing is probably illegal. Do you want to give the money back now,
or do we bring out our big hammer?" This stopped a lot of potential ICOs.

If you haven't seen it, see the SEC's fake ICO site.[3]

I have yet to find an ICO that resulted in a real, operating, profitable
business that wasn't some other cryptocurrency/blockchain based thing. We're
not seeing ICOs to build factories or farms or do real stuff.

[1] [https://www.sec.gov/news/press-
release/2017-185-0](https://www.sec.gov/news/press-release/2017-185-0)

[2] [https://www.sec.gov/news/press-
release/2018-94](https://www.sec.gov/news/press-release/2018-94)

[3] [https://www.investor.gov/additional-resources/news-
alerts/pr...](https://www.investor.gov/additional-resources/news-alerts/press-
releases/company-halts-ico-after-sec-raises-registration)

[3] [https://www.howeycoins.com](https://www.howeycoins.com)

~~~
nostrademons
"that wasn't some other cryptocurrency/blockchain based thing."

This is probably intentional on the part of all of the promoters, investors,
and potential users. The idea of the cryptocurrency world is to completely
replace the existing global financial system; if a company uses an ICO to
build a business that then takes payment in dollars, they've lost, and their
backers will be very angry. The whole _point_ is for the ICO token to be the
primary means of payment for services within the company's ecosystem, and the
backers are rewarded by having an advance claim on those services by virtue of
owning the tokens.

The question I'd look at to see whether an ICO is a scam or not is "Are goods
or services of non-monetary value being exchanged for tokens?" I suspect the
answer to this is negative for the vast majority of tokens, but it's also
pretty early in the development cycle: most ICO-funded companies are <1 year
old, while it typically takes 2-3 years to build something somewhat useful.

~~~
lozaning
I think the larger issue here will eventually be that the concept of 'the code
is law' breaks down when you need to rely on the actual law and law
enforcement to to enforce your 'code law'.

~~~
nostrademons
I think that's most likely true, but the wildcard is that "actual law" is
breaking down for an increasing number of people. There is an increasing
perception that existing government institutions and law enforcement are a
tool for the wealthy & powerful to oppress the poor, and - whether I agree
with that perception or not - when it comes to government legitimacy,
perception is reality. This trend comes from outside of cryptocurrency, and is
driven by things like international terrorism, perpetual war, drug cartels,
state corruption, Occupy Wall Street and the continuing anger that few if any
of the Wall Street Bankers that got us into the global financial crisis were
punished for it, the Tea Party, police brutality, a legal system that's
unaffordable for anyone that's not rich, increasing political polarization,
filter bubbles, and the rise of authoritarian governments. Cryptocurrency's
just stepping into the void left behind when institutions fuck themselves up;
if they continue fucking up, it's only a matter of time before you start
seeing crypto-legal systems with automated drone enforcement.

If you suggested in the late 1990s that people would be spending real money
for cryptocurrency, I'd think you were crazy. (Actually, Cryptonomicon _did_
suggest exactly that, and I thought that particular plot point _was_ crazy.)
Now, I'd give it maybe an 85% chance of being a crazy passing fad and a 15%
chance of being the social organizing principle of the 22nd century.

~~~
api
> crypto-legal systems with automated drone enforcement.

Or read Snow Crash by Neal Stephenson and experience it today. :)

~~~
nostrademons
I was thinking more Diamond Age, but yes.

------
CPLX
> All of this SEC action may sound like very bad news for ICOs, but many in
> the industry have a more optimistic take: regulatory clarity will bring
> growth

It will be an interesting test I suppose. If ICO’s are in fact a novel
technology that offers some kind of advantage, then this statement will be
correct.

If the entire and total value of ICO as a concept was that it was a means to
sidestep existing regulations by pretending they didn’t exist, then this
statement will prove laughable.

Personally, I lol’d

~~~
zjaffee
As someone whose generally bearish on crypto currencies, I do see one clear
benefit to ICOs over traditional exchanges. Namely the fact that you can trade
them 24 hours a day, 7 days a week, from anywhere in the world with an
internet connection, in any currency (theoretically) and on no fixed exchange
(although it's likely that the number of exchanges will be limited to reduce
price instability).

~~~
JumpCrisscross
> _you can trade them 24 hours a day, 7 days a week, from anywhere in the
> world with an internet connection, in any currency (theoretically) and on no
> fixed exchange_

This describes securities, generally. You and I can transact to trade shares
of Uber in renminbi on a Saturday. We can transact, over the counter and using
a broker, to trade shares of Apple in Canadian dollars the following day. The
Apple trade would need to be reported to the national ticker, for transparency
purposes, but that’s about it.

We concentrate public equity trading into fixed windows and currencies to
increase liquidity. It’s a convenience. Privately-negotiated trading is still
common for large blocks of public securities.

~~~
lawn
The obvious difference is transactions without a third party. You can also
verify ICO token integrity on the blockchain yourself (via open source apps).

~~~
notahacker
The obvious question is whether that actually matters all that much for
securities, since the broker/exchange adds negligible risk and overhead for
the buyer relative to the trust in the public company needed to buy a stake in
it and the costs of meeting regulatory requirements for public companies.

Anybody who's more worried by the potential complications of T+2 settlement
when purchasing blue chip stocks than the Wild West world of ICOs shouldn't be
investing.

~~~
lawn
That is indeed the right question to ask.

Maybe it's less about trust and more about permission. With token based
securities I could trade with whomever I choose whenever I want.

Interesting to see how it turns out in the end.

~~~
asynchrony
What happens if a trade that is illegal under the law of the country of the
seller/buyer/exchange? The courts would be completely powerless to undo the
transaction. Again it seems to me the main and only attraction is evading
regulation.

------
browsercoin
Had an interesting conversation if you have been involved in any ICO sales and
live in North America, seek legal counsel _immediately_. Do not listen to
idiots telling you this is good for the space, they don't know just how much
reach SEC has when it comes to securities fraud. The investigation will likely
span many years but they will eventually get to your ICO and will hit you with
wire fraud and felony, which won't go away and it will impact your employment
and possibly overseas travel.

If you were one of those companies that helped ICO launches, there's a good
chance you will see jail time accordingly.

Remember, the SEC has the manpower and allegedly a technology to uncloak
elaborate laundering on the open ledger, which opens up a whole new can of
worms called anti-money laundering orgs that become activated.

Im glad I walked away from ICOs.

~~~
gamblor956
The SEC can't impose jail time as punishment for securities law violations, as
their tools are limited to civil sanctions (see, e.g., the slam dunk case they
had against Elon Musk). However...they can refer cases to the DOJ for criminal
prosecution (see Martha Stewart, Elizabeth Holmes, etc.).

------
Nav_Panel
From the article:

> _subpoenas... focusing on those that failed to properly ensure they sold
> their token exclusively to accredited investors..._

The idea of an accredited investor in this context seems either a little silly
or like a major philosophical problem for tokens, depending how you view it.
What does it mean to be an accredited investor, anyway? From Matt Levine[1]:

> _Under U.S. law, some financial products, like hedge funds and private-
> company shares, are generally available only to "accredited investors."
> There's no actual accreditation -- there's no test -- it's just that if you
> have enough money you're "accredited." The theory is partly that if you have
> a lot of money you can afford to lose some of it on dumb private
> investments, and partly that if you have a lot of money then probably you
> know things about money and won't make dumb private investments. Both of
> these are terrible theories: If you have a lot of money, you still can't
> afford to lose all of it in dumb private investments, and there are plenty
> of rich dentists who don't know much about investing. The result is that it
> is both too easy to be an accredited investor, in that unsophisticated
> investors can be accredited, and too hard, in that fancy investing products
> are available only to the rich. (Rich-ish: The threshold is basically
> $200,000 in annual income or $1 million in assets.)_

1: [https://www.bloomberg.com/view/articles/2015-12-21/fraud-
bon...](https://www.bloomberg.com/view/articles/2015-12-21/fraud-bonuses-and-
accredited-investors)

~~~
bobthepanda
The point is not to protect individuals, but to protect society from the
blowout of every possible stupid investor getting wrecked all at the same
time, by limiting the pool of stupid investors. With enough advertising,
working and middle class people can be convinced to mortgage their house,
their property, their cars, etc. to shovel debt into a stock market that would
never go down because the advertisers told them so. That's how the Great
Depression started, and this has repeated itself in every market that didn't
restrict some investments to accredited investors.

Is it blunt? Sure. But it's better than repeating 1929.

~~~
pitaj
Personally, I think we should stop sheltering people from being able to make
stupid mistakes. Then maybe people will learn to be a little more skeptical
about everything.

~~~
awad
On balance, it's everyone's right to be stupid and burn their money to the
ground. But realistically, in the interconnected world we live in, that will
often involve burning other people as well and that's not something that
should be OK. The housing crisis had greedy unchecked bankers, but it also had
greedy unsophisticated (in a financial sense) individuals over-leveraging
themselves and we all paid the price as taxpayers. Some people lost their
homes and some people merely got a slap on the wrist, and however you feel
about each, we ALL paid for it.

~~~
pitaj
The "greedy unchecked banker" narrative is cute, but it completely absolves
the distortive effects government policies had on the market before the crash.
This included incentivizing subprime loans, Fanny Mae and Freddy Mac, and
previously bailing out banks (a signal that your risk will be subsidized in
the future).

There is no rule that the State must step in during bad situations, in fact
many would argue that the government stepping in makes things worse. We don't
all have to pay the price.

The market needs those corrections to learn. If the government steps in every
time, it doesn't have a chance to.

~~~
FabHK
No.

The government needs to step in to prevent a total collapse. When the
government refused to step in to rescue Lehman Brothers (precisely because of
the moral hazard problem you allude to), all hell broke loose.

Since the expectation (correctly) is that government will step in, we need
regulation (before a crash) that limits risk taking, for example capital
requirements (=equity) for banks.

Your narrative has been, in my opinion, comprehensibly refuted by, for
example, Anat Admati & Martin Hellwig in *The Bankers' New Clothes" [1], or
Krugman already in 2008 [2]. An overview over the debate is given in [3],
including this quote from Krugman:

> “for any public figure to go with the Congress-did-it argument at this stage
> is for him to reveal both that he is grossly ignorant about the central
> policy issue of the day and that he gets his ‘analysis’ from right-wing
> flacks.”

This is not to say that government policy has been perfect; but taking the
government out of the equation is not going to fix anything.

[1] [http://bankersnewclothes.com](http://bankersnewclothes.com) [2]
[https://www.nytimes.com/2008/07/14/opinion/14krugman.html?_r...](https://www.nytimes.com/2008/07/14/opinion/14krugman.html?_r=1)
[3] [https://www.outsidethebeltway.com/bloomberg-dont-blame-
banks...](https://www.outsidethebeltway.com/bloomberg-dont-blame-banks-for-
mortgage-crisis/)

------
JumpCrisscross
Cooley's invention of the Simple Agreement for a Future Token (SAFT) [1] was
genius. Not only did they earn fees on selling people the boondoggle, they'll
also cash in on defending every company, and every employee at said company,
who unlawfully sold these securities.

[1] [https://saftproject.com/static/SAFT-Project-
Whitepaper.pdf](https://saftproject.com/static/SAFT-Project-Whitepaper.pdf)

~~~
charlesdm
Isn't this just an interpretation of the law? Yes, the SEC may try to enforce
their view of the law, but is it actually the correct one?

It only takes one SAFT token company to take things to court, and have a judge
rule in their favour, to basically legitimise all tokens - no?

(Note: I have no clue who is right here, but just because it's the SEC doesn't
mean they are automatically right. Same applies to the IRS etc)

~~~
sharemywin
or go to prison if you lose.

~~~
s73v3r_
The SEC does not have the authority to bring criminal cases; only civil. They
can refer to the DoJ for criminal prosecution.

------
seibelj
The great hope of the JOBS act was to allow unaccredited ("mom and pop")
investors to get exposure to early-stage startups, in a safer way, so that the
huge gains went to average people instead of well-connected rich people and
VC's.

The problem currently with crowd-funded securities offerings is the overall
cost of capital (legal and regulatory), lack of liquidity post-raise, and that
most of the good opportunities are scooped up by hungry VC's chasing returns
in a fast money, low-interest environment. When the world is awash in easy
capital, crowdfunding is simply too much of a hassle for solid companies.

In comes ICO's. It fixed a lot of the issues with crowdfunding. Low cost to
start (just deploy a smart contract), instant liquidity, and global capital
raising. Obviously there are tons of issues (breaking securities laws, sketchy
companies, bubble mentality, and why actually do any work when you already
have the money, among many others). But this shows that demand for small seed-
stage companies is there.

The recent JOBS 3.0 act[0] will make 2 important changes to merge crowdfunding
and ICO's. One is the change to accredited investor laws to allow people to
prove investor competence without meeting arbitrary income / asset
requirements. This was to solve the paradox of twenty-something MBA's on Wall
Street giving professional advice on investments to wealthy people without
they themselves being able to invest.

The second important change is to create "venture exchanges", which have been
theoretically possible before, but have never been created. This will provide
liquidity to early-stage startups at new regulated crypto exchanges like
Coinbase, Poloniex, etc. I believe that blockchain, at a bare minimum,
enforces standard protocols. Whether security trading needed blockchain or not
to have protocol standardization accomplished is a separate argument, but
either way the technology encouraged and allowed it to happen organically.
Strict protocol enforcement of assets (ERC20, etc.) allows crypto exchanges
all over the world to inter-operate, and allows securities to be traded much
more freely all over the world as each country's crypto exchanges match their
rules with local security laws. This will allow offerings based in the US to
be bought and traded legally in Japan, South Africa, the EU, etc. It will also
allow smaller companies to raise capital more cheaply by tapping into a global
pool of investors.

[0] [https://www.dandodiary.com/2018/07/articles/securities-
laws/...](https://www.dandodiary.com/2018/07/articles/securities-laws/house-
passes-jobs-act-3-0/)

~~~
CPLX
> Obviously there are tons of issues (breaking securities laws, sketchy
> companies, bubble mentality, and why actually do any work when you already
> have the money, among many others). But this shows that demand for small
> seed-stage companies is there.

It’s worth noting that absolutely nobody is confused about there being demand
for highly speculative investment in small sketchy seed stage companies.

That demand has been around, literally, for hundreds of years. The entire
point of this category of securities laws is to prevent people from meeting
that demand, since doing so tends to have disastrous outcomes.

~~~
Karunamon
Disastrous for anyone other than those who jumped in without doing their due
dilligence?

My main gripe with the whole "accredited investor" thing is that its literally
legalized classism (and I'd argue a violation of the equal protection
doctrine, but that's another theory), as the income requirements eliminate a
huge swathe of investing for anyone but the 1%.

Nothing is stopping an uninformed investor from loading their net worth into a
single reuglar stock (you know, those perfectly safe instruments that never
ever lose their value and leave you with nothing), so I really, truly don't
see what these requirements are protecting anyone from, or why that protection
is necessary.

If it's really about protection, then education and nondiscriminatory
licensing based on testable knowledge would fill that goal, but instead we
have income minimums.

~~~
CPLX
As a society we believe that allowing people of modest means to be swindled
out of their savings is an unacceptable outcome and have enacted a large
battery of laws to avoid it.

These laws came about from very real and serious experiences that were, in
fact, catastrophic for many communities. It's a real live problem, and it goes
back a long way.

If you want to argue about the details that's great, but any discussion has to
start with the reality that an unregulated market leads to really unwanted
outcomes here.

You can also do the "who cares if people want to get swindled let them"
approach, but recognize that you've been outvoted on this topic, we've decided
to protect people like we try to protect people from unsafe food, consumer
products scams, and many other situations.

~~~
noarchy
I'm not sure that OP was referring to people being swindled, specifically, so
you speaking on behalf of society (the "we" stuff) probably wasn't needed.

I think it is understood that the regulations are in place to mitigate risk
for the most vulnerable. Whether this has been the right implementation
(income vs some other means) is what I think OP was getting at.

------
gfodor
The "utility token" meme was hilarious in the community basically talking
itself into the idea that the SEC was going to write a bunch of new laws
and/or interpret the existing ones in the most favorable light to those
raising ICOs. Playing with fire.

~~~
CryptoPunk
The SEC doesn't create law. Courts do. It can claim anything it wants, but
until its argument is tested by a court, it's not law.

There continue to be strong legal arguments for utility tokens not being
securities:

[https://www.coinbase.com/legal/securities-law-
framework.pdf](https://www.coinbase.com/legal/securities-law-framework.pdf)

This attitude of deferring to regulatory agencies, which have their own set of
institutional biases, on the question of the applicability of securities laws
to smart-contract executed issuances of digital tokens that confer zero legal
title to a common enterprise, is dangerous to liberty and innovation.

~~~
gamblor956
Courts don't create the law, they interpret it (...except in India, where the
Supreme Court actually does make laws). The Legislature writes the law.

A security doesn't require a common enterprise, it simply requires that one
thing represents an interest in something else. The underlying asset is
usually financial or intangible in nature, but that isn't required. There are
more specific rules and exceptions, but those vary by jurisdiction.

~~~
CryptoPunk
Courts create common law, which determines how statutory laws are interpreted.

>>A security doesn't require a common enterprise, it simply requires that one
thing represents an interest in something else.

Investment into a common enterprise is the second prong of the Howey Test.

~~~
gamblor956
True, but the Howey test is not the the sole test of determining what a
security is. Context matters.

------
awad
Plenty of real companies making real revenue offer JOBS Act compliant equity
crowdfunding, such as [https://invest.hylete.com/](https://invest.hylete.com/)
though they don't come with the promise of the moon or Lambos or any implied
notion of anything at all besides an opportunity to invest in a business. But
you do get a real equity claim that's worth _something_.

But, as per usual, human greed trumps all, and many latched onto incredibly
terrible ideas created by woefully unqualified individuals because of a bull
market, cognitive dissonance out in full force. History sure has a way of
repeating itself.

------
ryanbubinski
I wonder how much money the SEC has been bringing in this year—probably a
record year. Does anyone know how this is reported?

~~~
why_only_15
I don't think the SEC takes the money from people - the SEC tells them to give
it back to investors.

------
hihi123456
Before we say everyone is going to jail and add to the fear-mongering. Like
any tech company who are placed on the fringe-- DLT/ Blockchain included --
get a good GC/Lawyer. They can easily shepherd you through the ever changing
matters of remaining compliant.

------
village-idiot
Given the amount of stunning fraud in the ICO market, it was only a matter of
time before it was regulated just like every other security. The interesting
question is whether or not ICOs have any actual value beside fraud.

------
pontifier
I wish the SEC would investigate NEM. I was an initial stakeholder. They
refuse to release coins to hundreds of stakeholders who missed some un-
publicised deadline a couple of years ago.

------
anonymous5133
If you have a ICO startup it would be pretty stupid to be in the USA.

~~~
andreygrehov
Why? Just follow the law. You can easily launch a Reg D 506(c) offering.

~~~
wmf
If you "just" use Reg D, then you can't take money from non-accredited suckers
so you'll raise far less money and your security token can't trade on any
exchange (yet).

~~~
andreygrehov
Well, there is no dependency between being able to take money from non-
accredited "suckers" and the total amount one can raise. You can raise a shit
ton of money with accredited investors only. It's just more complicated.

------
notananthem
ICO's were just a cash grab by unscrupulous entrepreneurs. SEC should police
the hell out of this stuff, that's their job.

------
browsercoin
it seems like there can be no bad news to crypto. any piece is taken as good
for the space but they should read the fine print, the SEC is putting an end
to all ICO

------
s73v3r_
And by "tightens the noose", they mean, "Advise to follow existing securities
law, like everyone else".

~~~
Animats
Yes.

 _" From the SEC’s perspective, there is no lack of clarity. The sniff tests
are the same as they have been for decades. The SEC is applying the same
securities laws to ICOs that it always applies."_

 _“Everybody’s holding their breath for the SEC to create some kind of coin
rule, and they’re not going to,” says a securities attorney at one high-
profile Silicon Valley firm. “They’re applying the same laws, the same
statutes, the same rules, to stocks and bonds and everything else.”_

In other words, "what part of "no" did you not understand."

It's hard to find a successful ICO, in the sense that they did whatever they
said they were going to do, and did it profitably. From Medium's list of
"successful ICOs:"

ICONOMI is held up as a successful example, but they're a "digital asset
management platform". They probably should have a broker/dealer license.

Solve.care claims "Solve.Care makes healthcare affordable and easy for
everyone". All they have is some kind of "physician wallet".

Truegame is gambling.

Play2Live is like Twitch.tv, except that it costs to watch.

StopTheFakes.io: "Token sale is finished. Thank you for your participation".
It's like Mechanical Turk looking for copyright infringement. On their actual
site, "[http://web.stopthefakes.co/"](http://web.stopthefakes.co/"), no new
tasks since 2017.

This is pathetic.

------
timcc50
They need to create new regulation, not cack-handidly apply old regs to
entirely different technology

~~~
s73v3r_
Why do they? There's nothing special about an ICO, other than it's "on a
computer". When it comes to the concept of investing, they're not doing
anything new.

~~~
anovikov
Well, tokens sold on ICO mean nothing and does not represent share of the
company, or anything at all. They are just vapour.

Personally i don't think that ICOs should be banned or regulated - if
anything, they are frequently done by anonymous or fake identity people and
cashed out using monero, anyway.

Just explain people that they are a scam, and a crime if (unlikely) caught,
just like they explained about nigerian prince scam.

------
bentoscher
opportunities, ICOs, money; flowers, bees, and honey.

just because you're callin' that pollen dust -- don't mean your allergic nose
won't sneeze bust.

------
gotocake
Where does all of this leave Brave’s BAT token?

------
sp527
There's an argument to be made that it was irresponsible for the SEC to wait
this long to clarify their position on enforcement. My guess is they want to
deflate this nonsense slowly instead of pop it. It metastasized into a
somewhat 'too big to fail' situation before they had time to react properly.

~~~
flyGuyOnTheSly
>It metastasized into a somewhat 'too big to fail' situation before they had
time to react properly.

What harm could come from indicting scammy ICO pushers too quickly, or those
who had crowdsourced too much money?

~~~
wmf
Hypothetically it might have caused a "blockchain winter" scenario where
investors refused to invest in anything, even legit stuff like Filecoin.

------
jimmaswell
I never had strong feelings one way or the other on the SEC until recently.
Now, from their unjustified behavior due to Elon's tweets (what's more
important to our future as a planet, punishing someone for a gray area tweet
they could have chosen to go either way on, or letting Elon continue to
innovate at full capacity?) to ruining ICOs, I feel like we'd all be better
off if the SEC was reduced by at least a factor of half along with the number
of regulations they enforce.

------
CryptoPunk
The laws need to change. The SEC should only get involved when someone
defrauds another party through misrepresentation. Mandatory disclosure,
registration, and KYC requirements are all infringements on the right to
privacy and free contract.

That the poorest households spend 9% of their income on state-run lotteries,
yet people can't try their hand at investing their own money in
businesses/projects that haven't been vetted by a centralized government
agency, shows the opportunistic and disingenuous appeal to virtue that's used
to sell the public on the need to be controlled.

~~~
empath75
> The SEC should only get involved when someone defrauds another party through
> misrepresentation.

So basically ICOs, then.

~~~
jarsin
Exactly. The average ICO made buzzword promises much more insane and
fraudulent than even Theranos.

As someone who watched all this quite closely back in the day I cannot believe
the amount of money these hucksters pulled out of people and still are to this
day.

~~~
CryptoPunk
>>As someone who watched all this quite closely back in the day I cannot
believe the amount of money these hucksters pulled out of people and still are
to this day.

I don't like people promising the moon to hype up speculative investments, but
there are non-government solutions to this, like reputation markets.

In fact we see these non-government solutions working already: token investors
today are unrecognizable from those that were giving a website with a white
paper $40 million worth of cryptocurrency in 2016. This transformation has
occurred completely independently from any regulatory action. The collective
intelligence of the market has increased from hard-won lessons in the need to
do due diligence, and the emergence of numerous sites for rating token sales
(mind you, there's still a lot of room improvement in the curation market).

Regulations can obviously address some of these problems too, but any
restriction on how consenting parties choose to interact is going to have
massive unintended consequences, and in my estimation the unintended
consequences do much more harm than what's alleviated by the regulations.

Also worth mentioning is that the regulations that the SEC is trying to impose
on token sales go far beyond prohibiting issuers from promising big gains.
They try to micromanage how an offering is conducted with inflexible cookie
cutter rules that inhibit innovation and make the entire market dependent on a
centralized gatekeeper, which is a monopolistic and fragile situation prone to
systemic failures.

It's obvious to me that a free society should not tolerate this level of
control being exerted on how people engage in voluntary interactions with
other consenting adults.

The problem is that the idea that we ought to be free to do with our money
what we wish threatens many powerful special interests, so we get a never-
ending stream of rationalizations and emotional appeals for restricting
people's contracting rights, and for funnelling commerce through centralized
gatekeepers.

~~~
stale2002
I mean, ok. But you are basically arguing that fraud should be allowed,
because it is between "consenting adults".

If that's what you want, fine. But you should be open and honest about the
fact that you believe that financial fraud should be legal.

And I'd like to point out that fraud is not a new concept. It is something
that has been explored in many aspects of society, and most people oppose
fraud. Fraud on a Blockchain is still fraud.

~~~
CryptoPunk
Fraud by definition is non-consensual, since it means someone not consenting
to a material fact that was withheld from them about the interaction. It's
fundamentally theft through misrepresentation of facts and should always be
illegal.

Someone saying "We believe this token will go up 200% in two years" is
probably not a misrepresentation of facts, and thus not fraud, and should
probably be allowed, and they should suffer the reputational damage when their
predictions don't pan out.

But if we created laws that did prohibit people from hyping up the investment
potential of a token they put for sale, or laws that require token sale
organizers to disclose the general risks around investing in speculative
assets, like requiring them to include a statement on their website like "this
is a highly speculative asset that has not been registered with the SEC.
Speculative investments have a high likelihood of losing all of their value.
It is recommended that you get professional investment advice before making an
investment into a speculative instrument like this, and that you avoid
investing a large portion of your wealth in them", that would probably be
fine. It wouldn't be a major impediment to voluntary exchange.

Like I said though, what the SEC is seeking to do goes far beyond barring
token sale organizers from hyping their project's profit potential, or
requiring such warning messages on their websites. If that's all the SEC
wanted to do, I wouldn't be nearly as opposed, if at all.

------
hal9000xp
In the eyes of SEC, ICOs are nothing more than equity crowdfunding. It means
that SEC doesn't like any sale of unlisted assets to unaccredited investors.

By SEC definition accredited investor is an investor who has either $1M of
liquid net worth or stable income not less than $200k per year.

Original intent of the government was to bar unsophisticated investors from
high risk investments.

While I understand logic of the law - many people are completely financially
irresponsible and are not capable of critical thinking (that's what
politically correct term "unsophisticated investor" actually means), I find
this law extremely frustrating.

For example, I had no chance to buy Spotify when it was well under $1B
valuation because the government baby-sitting me by excluding me from
opportunity to invest into early-stage startups.

If you want to downvote me on "not capable of critical thinking" and at the
same time support barring people from making their own financial decisions,
please think twice because it's clear contradiction.

There is a compromise: Why not lower entry level of becoming accredited
investor? For example, you could be semi-accredited investor with lower
capital but with limits on investments. Or making some government exams on
risk taking and investing? Or having special government-approved platform for
early-stage investments for unaccredited investors. There are lots of
combinations.

Right now, there is a huge hunger among people for early-stage investments.
And if you are not making it legal, it just go underground and as a result
with more dangers for unsophisticated investors.

~~~
harryh
Even without the SEC, you would not have been able to invest in Spotify. They
had zero interest in taking your money when they could raise money much more
easily from professional investors capable of writing 8 figure checks.

It's very important to understand this and the adverse selection problem that
would emerge if laws were changed. There's a reason that only scammers did
ICOs.

~~~
hal9000xp
> only scammers did ICOs

This is absolutely incorrect. One of many examples - Tezos.

~~~
harryh
Oh, I probably overstated a little bit. But I'm confident that 90%+ of them
were scams.

Re: Tezos - "Inside the Crypto World's Biggest Scandal"

[https://www.wired.com/story/tezos-blockchain-love-story-
horr...](https://www.wired.com/story/tezos-blockchain-love-story-horror-
story/)

