
Federal Court Rules Case in Favor of Crypto ICO Against SEC - will_brown
https://www.ccn.com/monumental-federal-court-rules-case-in-favor-of-crypto-ico-against-sec/
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FiloSottile
The court simply denied the SEC's ‭request for a preliminary injunction,
saying it will need to see discovery and proof to judge on the merits. The
case still has some way to go, it was not at all dismissed.

“At this stage, without full discovery and disputed issues of material facts,
the Court cannot make a determination whether the BLV token offered to the 32
test investors was a ‘security,’”

[https://www.scribd.com/document/394382912/Blockvest-
Ruling](https://www.scribd.com/document/394382912/Blockvest-Ruling)

~~~
will_brown
Well whereas the SEC had taken the position that airdrops could violate the
securities laws of the tokens were a security...

>According to the court, in the ICO context there must be a ‘risk of financial
loss’. This supports the proposition that something like an airdrop, by
itself, cannot be a securities offering...

So tokens even if securities may not violate securities laws by being
distributed via airdrop.

I think ultimately the tokens here will be securities here, unless the
transfer of the tokens are restricted (and they include no right to company
profits).

~~~
Alex3917
> I think ultimately the tokens here will be securities here, unless the
> transfer of the tokens are restricted

Transfer _probably_ doesn't have to be restricted. From what I've heard, the
promoters of the security aren't allowed to solicit exchanges to list their
token, but aren't under any obligation to stop others from selling it.

~~~
will_brown
Well I’m just an attorney that works with the SEC on these matters, and have
had these exact conversations with the Office of Chief Counsel. What do I
know, keep the down votes coming.

~~~
Alex3917
I mean I'm not saying you're wrong, on the surface it just doesn't make any
sense though and it's seemingly different than what the SEC was saying as
recently as six months ago. It's easy to see how if something were a security
then the issuer could be required to restrict transfer, but under the
framework of the Howey Test (or whatever else) what is the justification for
how not restricting transfer could make an airdropped asset a security if they
didn't also do an ICO or do something else to make themselves a security?

I mean clearly it could contribute to an expectation of profit, but how do the
other prongs of the test get violated?

Last year I did invent a novel mechanism to allow tokens to comply with
securities laws while both allowing end users to spend them as utility tokens
and accredited investors to profit from them as investments, so I'm curious to
see if a real market need develops here.

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will_brown
>Last year I did invent a novel mechanism to allow tokens to comply with
securities laws while both allowing end users to spend them as utility tokens
and accredited investors to profit from them as investments, so I'm curious to
see if a real market need develops here.

Not saying you didn’t. But keep in mind one of the biggest and most prominent
law firms in the tech/startup/Blockchain space published the original “legal
framework” for SAFTs (simple agreement for tokens) based on SAFEs(simple
agreements for equity) which was premised on a utility token...18 months later
the SEC dropped the hammer on companies who ICO’ed using said SAFT framework.

So question did you submit your legal framework to the SEC and they told you
it is compliant?

~~~
Alex3917
> So question did you submit your legal framework to the SEC and they told you
> it is compliant?

I haven't, but it's done in a way that makes it impossible for any of the
prongs of the Howey Test to be met for non-accredited investors. (There is no
investment, there is no possibility of profit, etc.) So if there are things
that need to be changed, which there may be, they're probably relatively
minor.

> 18 months later the SEC dropped the hammer on companies who ICO’ed using
> said SAFT framework.

What the SEC has repeatedly affirmed is that the law hasn't changed since the
1920s or whatever. The fact that the law firm in question may have been
advising their clients to commit crimes doesn't mean the law has changed.

~~~
will_brown
Well no offense but until you submit your legal proposal to the SEC and get
their opinion...any claim about “SEC compliance” is suspect. Again you may
very well may have done what you say, but if anyone had developed a legal
framework, it’s unexplainable why they wouldn’t get the SEC to confirm the
same.

The SEC created an entire division and online submission portal to handle
these requests, and to date no one has established a legal framework for ICOs
(short of registering the token as a security, or accredited investor only
exemptions). Congress has even asked the SEC to publish guidelines for a legal
ICO, and to date the SEC hasn’t (likely because short of
registering/accredited investor exemptions/transfer restriction the SEC can’t
come up with a legal framework).

~~~
Alex3917
> if anyone had developed a legal framework, it’s unexplainable why they
> wouldn’t get the SEC to confirm the same.

I mean it's not something I'm actually working on so it would be a waste of
time and money to solicit the SEC's guidance. I've told some other people who
are planning ICOs how the system works, so if they want to actually implement
it then it's their responsibility to pay to have their lawyers sit in on SEC
meetings and for a legal opinion, documents, etc.

~~~
will_brown
FYI checkout [https://www.sec.gov/finhub](https://www.sec.gov/finhub)

It’s free (no SEC fees) and you don’t need a lawyer. I’d recommend a
lawyer...but there are no SEC meetings for them to sit in on and bill you for.

~~~
Alex3917
Thanks, I'll send them my architecture and writeup at some point. I'm avoid
spending much time working on crypto stuff until the markets capitulate, but
it's looking more and more like that could be within the next six months.

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ralmidani
I'm a crypto investor (I currently hold XRP, XLM, ADA, and ETH) and even
helped someone develop a prototype for a new exchange, but at least part of me
is rooting for the SEC on this one.

If ICO abuse is not curbed, it will become the weapon of choice for all kinds
of scammers and hucksters. I'm obviously not anti-crypto, but the scene
__has__ become a Wild West. Tying law enforcement's hands will embolden the
bad actors and make it less likely for the good actors to attain mainstream
acceptance.

~~~
lostmsu
Just like Kickstarter. If anything, I'd like to see ICOs stay unregulated.

~~~
bdcravens
The problem with ICOs is you can put some very shady crap.

For instance, there was EtherDoge. They were pushing their air drop on Reddit.
However, they coded in to the smart contract pushing back the air drop. Their
website showed a "team" with photos stolen off of Twitter and LinkedIn.
Whenever you called them out on Reddit, the mods of the subreddit were
deleting the posts.

Obviously not every ICO is conducted thusly, but straight up fraud still needs
to be addressed.

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Alex3917
The court made the correct decision, but the idea that this sets some sort of
anti-SEC precedent is false. It's more like the SEC just made a minor mistake
in their court filing and then got told to go back and fix it.

It does offer legal protection to people who only did an airdrop and not an
ICO, but realistically the SEC wasn't going to go after any of these people
anyway unless they solicited exchanges to list their token.

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rlucas
Please change the title here — the ruling was in preliminary motion practice
and was no way dispositive of the “case.”

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rebuilder
Here's the link without Google cruft:

[https://www.ccn.com/monumental-federal-court-rules-case-
in-f...](https://www.ccn.com/monumental-federal-court-rules-case-in-favor-of-
crypto-ico-against-sec/)

~~~
balibebas
And by cruft they mean spyware.

~~~
rebuilder
I was going to say something to that effect, but who are we kidding - I'm sure
Google tracks visitors to that site whether they go there via the AMP link or
not.

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balibebas
FYI for anyone who hasn't read the time tested definition of what is a
security look it up in the letter of the US law and you will see a ‘security’
is something traded in a federally controlled exchange. Methinks this is why
the oligarchs are attaching DEXes now. That poor EtherDelta guy...

~~~
rlucas
Important glaring factual error here.

Under securities law, ALMOST ANY kind of deal to trade money for an intangible
where the buyer expects to profit from others’ work is a security. Exchange
listings having nothing to do with it.

Nothing is new under the sun and since the Securities Act of 1933 innumerable
schemes to sell paper to rubes have been tried using different names, labels,
or tweaks to avoid the regs. Universally the shenanigans get slapped.

Pretty much, the thing that ICO promoters want to do (get money or pseudo-
money from people looking to profit) is tautologically securities sales under
our current US regulatory regime.

Source: business partner and I burned a lot of lawyers’ time in late 2012
seeing what was going to come of the equity crowdfunding/JOBS Act stuff for a
startup, and ultimately decided to wave off (you’ll note that essentially
nothing new has come from that; most all the issuers in that space still rely
upon traditional SEC exemptions etc.)

