Joining the seemingly endless parade of blockchain-enabled initial coin offerings (ICOs) that have hit the market, the Securities and Exchange Commission (SEC) is promoting a new offering of digital tokens, called Howeycoins, for sale to the public. The Howeycoins platform is touted as one of the largest cryptocurrency platforms, enabling investors to use digital tokens to buy services or products in the travel industry, such as airplane tickets, hotel rooms and rental cars, or simply to trade for profit. In addition, Howeycoins are said to be officially registered with the SEC and will trade on an SEC-compliant exchange.
The offering is being conducted using the format of most ICOs. Investors are drawn to a website, in this case www.howeycoins.com, to participate in the offering. The ICO is structured as an investment discount “ladder,” giving early investors significant discounts to the offering price of the tokens, and there is a time counter showing the days, hours, minutes and seconds before the ICO is closed. Purchases can be made with credit cards. As are typical of ICOs, there is a link to a “white paper” that describes the value and utility proposition associated with Howeycoin. The website also identifies the management team and includes celebrity testimonials. Continue reading SEC Launches Howeycoins ICO (Spoiler – it’s Fake)
The Securities and Exchange Commission (SEC) has made it clear that it considers all initial offerings of cryptocurrencies and digital tokens as offerings of securities. The matter is not completely free from doubt, as many cryptocurrency market participants continue to take issue with the SEC’s view. It is not inconceivable that the matter will ultimately end up in court or become the subject of legislation given the breadth of the ICO market, the potential of the underlying blockchain technology and the vast sums of money at stake. The SEC, however, has given all securities lawyers, accountants and underwriters fair warning, that for the present, almost all digital tokens and cryptocurrencies will be treated as securities under the federal securities laws and that any offer or sale of digital assets must be registered with the SEC or qualify for a valid exemption from registration.
The following link is a table that sets forth the terms of the more common methods of conducting securities offerings under federal securities law and SEC rules and regulations. Failure to fully comply with one of the offering alternatives can result in liability for investment losses, investor rescission rights, SEC civil penalties and criminal sanctions.
Click here to access the table “Securities Offering Requirements”: ICO Securities Offerings
At this week’s Practising Law Institute’s Annual Institute on Securities Regulation, SEC Chairman Jay Clayton commented, among other things, on initial coin offerings, or ICOs. As we know, this year alone billions of dollars have been raised in ICOs, where cryptocurrency in the form of a “token” or coin is sold to investors to raise money for a company or other business endeavor. The tokens often trade on an online platform. Previously the SEC had issued a warning saying that the tokens may be securities and to be careful. Prior to that players were assuming securities laws did not apply. They also last week issued a warning to celebrities about risks of endorsing ICOs.
Chairman Clayton went a bit further today, going off his script to say that he has yet to see an ICO that doesn’t have “sufficient indicia” of being a securities offering. He also mentioned that the trading platforms could face SEC scrutiny and might have to either register as national securities exchanges or make clear they have an exemption from doing so.
While there may well be circumstances in which structures can be implemented to avoid being deemed securities, it seems there could be an exciting opportunity for ICO promoters to conduct their offerings under the securities laws, and allow trading of tokens on proper SEC approved exchanges. There would still be real benefits, including not diluting insiders’ ownership of their company. This could reduce the risk of fraud and still encourage capital formation.
Purveyors of initial coin offerings (ICOs) received a strong lashing from the SEC recently in declaring that one particular ICO was a securities offering that should have been fully registered with the SEC or met with an exemption from registration. A very new and exploding technique, in ICOs companies issue digital tokens through blockchain technology to investors. It is said over $1 billion has been raised in ICOs just since this January. Several known pending deals seek to raise over $100 million each.
Because the coin purchasers do not invest in the company, some experts claim they are therefore not securities. The SEC disagreed but also said in a press release they would not bring an action against the particular company “in light of the facts and circumstances.” They then issued a warning to all those in the ICO world that many other such offerings might be deemed securities, especially if they become tradeable in a secondary market as many do. In ICOs, very little information is typically provided to investors, and many deals are completed even without attorneys or other advisers.
The SEC investigated the case in question, involving a virtual company known as “the DAO,” because millions of dollars of coins in their ICO were hacked (most were recovered). They also issued an investor bulletin warning the public about potential fraud in ICOs, including bad actors making promises of large returns on investment. ICOs may indeed become a worthwhile investment and method for companies to access capital, especially if promoters accede to the SEC’s warning and conduct a proper IPO or exempt offering such as under Regulation D.