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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4 4 M A R - A P R 2 0 1 8 | H C B A L A W Y E R
dlt and iCo’s: an uPdate on eMerging regulation
Securities Section
Chairs: Rob Jamieson – Wiand Guerra King & Matthew Schwartz – Cole Scott Kissane
O
n 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
44
potential. SEC
other investments
guidance and
by celebrities
statements thus
and others may
far acknowledge
be unlawful if
the unique
the promoter does
characteristics
not disclose the
of the
nature, source,
cryptocurrency
and amount of
market. The
compensation
SEC currently
paid, directly
appears
or indirectly, as
supportive of
consideration for
technological
the endorsement. 3
advancements,
The Chairman
while being
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