In a press release, the SEC concluded that anyone using "..distributed ledger or blockchain enabled means for capital raising (needs) to take appropriate steps to insure compliance with US federal securities laws.” This determination is inappropriately broad, and is sure to be overturned in Court, since the SEC does not have direct authority over currencies.
As we note in our report (https://www.prlog.org/12655138-creative- investment-issues- initial-coin- offering-ico-report.html) ICOs have features that resemble crowdfunding, venture capital and IPOs. They are simply a new tool for doing what Title III of the JOBS Act should have done - sourcing capital to innovative startups in an efficient way. Title III allows all companies with less than $1 billion in sales to raise up to $1 million dollars in equity or debt. This section of the JOBS Act was designed, as I note in my book, to create eBay-like sites that allow you to post your idea for a commercial venture online and then allows investors to purchase equity shares or stakes in it. Title III has, since 2016, in aggregate generated slightly over $50 million in committed capital. The law was signed in 2012. So far in 2017, ICO issuers have raised over $1 billion.
The SEC may have legitimate questions about the classification of ICOs, but their action simply confirms that regulators are protecting entrenched social and financial interests (not the public) from a new financial technology (blockchain) with almost unlimited potential.
In attempting to bring ICOs under federal securities laws, the SEC states that "participating in unregistered offerings may subject participants to..criminal enforcement proceedings." Of course, this is only true if you are not Goldman Sachs, Wells Fargo or Standard and Poor's, institutions guilty of significant securities law violations before, during and after the financial crisis who have yet to be subject to criminal enforcement proceedings..
A key factor the SEC cites in its argument in favor of ICO regulation rests on “full and fair disclosure,” but Wells Fargo created two million fake accounts without disclosing this. If the SEC were actually concerned about the public interest, Wells would have faced charges immediately for violating disclosure regulations. Given this, one can legitimately question the public's ability, based on past performance, to trust the SEC to act in the public interest. As outlined this in our Transaction Cost Theory of the Financial Crisis, released in 2010, people are looking for financial instruments, institutions and regulators they can trust. The popularity of digital currency, decentralized structures and new ways of raising capital is, quite simply, the result of this lack of trust.
The nature of blockchain is such that this technology — not regulators — will win in the long term. It would be better for the SEC to recognize this and to simply call for ICOs to list on a globally centralized, publicly accessible database, maintained by the SEC, at no cost to ICO issuers, and with no penalties (other than fines for deliberately fraudulent registrations.)
At this point in the development of this marketplace, having a comprehensive database of all ICOs is more valuable and appropriate than subjecting these new firms to full and complete SEC registration. The agency can revisit this in, say, a year or two to determine if more comprehensive regulation is required, but for the next six to twelve months, this should be the regulatory position of the SEC with respect to the new ICO marketplace.