dlt and iCo ’ s : an uPdate on eMerging regulation
Securities Section Chairs : Rob Jamieson – Wiand Guerra King & Matthew Schwartz – Cole Scott Kissane
On September 25 , 2017 , the SEC announced new enforcement initiatives , including the creation of a new Cyber Unit , to combat cyber-based threats and to protect retail investors . 1 The new Cyber Unit focuses on , among other cyber-based misconduct , violations involving distributed ledger technology ( DLT ) and initial coin offerings ( ICO ).
Between July and October , the SEC issued initial insight into two cases involving the sale of coins and tokens . 2 Both cases involved defraud - ing investors in asset-backed ICO ’ s , which purportedly were backed by real estate in one case and diamonds in the other . Each involved the unregistered sale of securities and nonexistent digital tokens .
In November , the SEC warned that the promotion of ICOs and
other investments by celebrities and others may be unlawful if the promoter does not disclose the nature , source , and amount of compensation paid , directly or indirectly , as consideration for the endorsement . 3 The Chairman also warned against insider trading within ICOs . 4
Interesting complications in regulating DLT and ICO ’ s emerge from the diverse character of the coins and tokens . Coins and tokens may be categorized differently depending on the facts and circumstance surrounding the design , creation , and implementation of each coin or token . Such diversity requires nuanced analysis and demands flexible regulation , allowing for the emerging token economy to realize its full , flexible , and diverse
© Can Stock Photo / stevanovicigor
the seC and CftC provide further guidance on regulation of cryptocurrencies .
potential . SEC guidance and statements thus far acknowledge the unique characteristics of the cryptocurrency market . The SEC currently appears supportive of technological advancements , while being consistent with its primary objective of protecting investors .
In the latter part of 2017 , CFTC Commissioner Brian Quintenz opined that digital assets “ may actually transform at some point from something that starts off as a security and transforms into a commodity .” 5 He also observed that its “ going to be a very difficult but important conversation for us to have to give the market certainty , to allow for innovation to flourish and
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