The Supreme Court has given the SEC ability to duck type the definition of securities, which is:
> 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.
Quoting Marine Bank v. Weaver:
> The definition of "security" in the Securities Exchange Act of 1934 is quite broad. The Act was adopted to restore investors' confidence in the financial markets, and the term "security" was meant to include "the many types of instrument that, in our commercial world, fall within the ordinary concept of a security." The statutory definition excludes only currency and notes with a maturity of less than nine months. It includes ordinary stocks and bonds, along with the "countless and variable schemes devised by those who seek the use of the money of others on the promise of profits. Thus, the coverage of the antifraud provisions of the securities laws is not limited to instruments traded at securities exchanges and over-the-counter markets, but extends to uncommon and irregular instruments. We have repeatedly held that the test "'is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.'"
ICOs are almost certainly selling securities. Tokens look like a duck. They quack like a duck. They are sold by people promoting them as ducks. A ToS which says "n.b. Our quacking avians are not ducks; they're a totally different non-duck like thing which will supplant ducks in the future because they're so much better than ducks and cannot be regulated as ducks" will probably not mollify the SEC.
But they don't quack. Tokens do not represent a share of anything, nor any right to present or future anything, nor do the companies selling them ever claim such. They are disconnected from the success or failure of the underlying venture in a way that other stock-like instruments never have been. Indeed, the quoted paragraph specifically excludes currencies.
Are there any cases of security-like instruments being explicitly declared out of bounds for the SEC?
I'm thinking specifically of bond-like assets or "evidence of indebtness" emitted by private persons on MMO rpg assets which have real-money trading options either as proposed by the game editor or in third party markets?
Even more specifically I'm thinking of EVE online's PLEX items who area open to in game market and have been known to change hands within various ingame organisations for very real money. Some of these organisations have schemes to offer tokens of indebtness in exchange for the acquisition of these digital items that could be construed as a proper security if I read this right. Am I missing something?
A security is a standardized and tradeable asset that derives its value from a contractual claim. From my layman's understanding of US securities law, for a token sale to be defined as a securities offering, the token issuers have to make representations of the token providing the holder with contractual rights to a share of an underlying enterprise, including all profits derived from it.
In my opinion, the vast majority of token sales haven't advertised their tokens as representing a legal claim on an enterprise and its profits.
Orocrypt is one that has gone the route of issuing an equity-token, and if offered to US residents, would fall under US securities laws:
> 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.
Quoting Marine Bank v. Weaver:
> The definition of "security" in the Securities Exchange Act of 1934 is quite broad. The Act was adopted to restore investors' confidence in the financial markets, and the term "security" was meant to include "the many types of instrument that, in our commercial world, fall within the ordinary concept of a security." The statutory definition excludes only currency and notes with a maturity of less than nine months. It includes ordinary stocks and bonds, along with the "countless and variable schemes devised by those who seek the use of the money of others on the promise of profits. Thus, the coverage of the antifraud provisions of the securities laws is not limited to instruments traded at securities exchanges and over-the-counter markets, but extends to uncommon and irregular instruments. We have repeatedly held that the test "'is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.'"
ICOs are almost certainly selling securities. Tokens look like a duck. They quack like a duck. They are sold by people promoting them as ducks. A ToS which says "n.b. Our quacking avians are not ducks; they're a totally different non-duck like thing which will supplant ducks in the future because they're so much better than ducks and cannot be regulated as ducks" will probably not mollify the SEC.