SEC Cracks Down On "Initial Coin Offerings": Concludes Tokens Are Subject To Securities Laws

Tyler Durden's picture

In groundbreaking news for the blockchain community, moments ago the SEC issued a press release, referencing an investor bulletin on Initial Coin Offerings, which concluded that DAO Tokens, a Digital Asset, are securities for regulatory purposes, and cautioned that US Securities law "may" apply to offers, sales and trading of interested in virtual organization, targeting the increasingly more popular Initial Coin Offerings.

As a result of this change of treatment, those who use ICOs to sell tokens, which as a reminder have now surpassed over $1 billion in net proceeds, will have to register the tokens as securities, those participating in unregistered offerings may be liable for violations of the securities laws, and that the purpose of the registration "is to ensure that investors are sold investments that include all the proper disclosures and are subject to regulatory scrutiny for investors' protection."

In a press release issued on Tuesday afternoon, the SEC said it had issued an investigative report "cautioning market participants that offers and sales of digital assets by "virtual" organizations are subject to the requirements of the federal securities laws." Such offers and sales, conducted by organizations using distributed ledger or blockchain technology, have been referred to, among other things, as "Initial Coin Offerings" or "Token Sales." In its first official regulatory intervention of ICOs, the SEC said that "whether a particular investment transaction involves the offer or sale of a security – regardless of the terminology or technology used – will depend on the facts and circumstances, including the economic realities of the transaction."

Some more details from the report, highlights ours:

The SEC's Report of Investigation found that tokens offered and sold by a "virtual" organization known as "The DAO" were securities and therefore subject to the federal securities laws. The Report confirms that issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies. Those participating in unregistered offerings also may be liable for violations of the securities laws. Additionally, securities exchanges providing for trading in these securities must register unless they are exempt. The purpose of the registration provisions of the federal securities laws is to ensure that investors are sold investments that include all the proper disclosures and are subject to regulatory scrutiny for investors' protection.


"The SEC is studying the effects of distributed ledger and other innovative technologies and encourages market participants to engage with us," said SEC Chairman Jay Clayton. "We seek to foster innovative and beneficial ways to raise capital, while ensuring – first and foremost – that investors and our markets are protected."


"Investors need the essential facts behind any investment opportunity so they can make fully informed decisions, and today's Report confirms that sponsors of offerings conducted through the use of distributed ledger or blockchain technology must comply with the securities laws," said William Hinman, Director of the Division of Corporation Finance.


The SEC's Report stems from an inquiry that the agency’s Enforcement Division launched into whether The DAO and associated entities and individuals violated federal securities laws with unregistered offers and sales of DAO Tokens in exchange for "Ether," a virtual currency. The DAO has been described as a "crowdfunding contract" but it would not have met the requirements of the Regulation Crowdfunding exemption because, among other things, it was not a broker-dealer or a funding portal registered with the SEC and the Financial Industry Regulatory Authority.


"The innovative technology behind these virtual transactions does not exempt securities offerings and trading platforms from the regulatory framework designed to protect investors and the integrity of the markets," said Stephanie Avakian, Co-Director of the SEC's Enforcement Division. 


Steven Peikin, Co-Director of the Enforcement Division added, "As the evolution of technology continues to influence how businesses operate and raise capital, market participants must remain cognizant of the application of the federal securities laws."


In light of the facts and circumstances, the agency has decided not to bring charges in this instance, or make findings of violations in the Report, but rather to caution the industry and market participants:  the federal securities laws apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.


The SEC's Office of Investor Education and Advocacy today issued an investor bulletin educating investors about ICOs. As discussed in the Report, virtual coins or tokens may be securities and subject to the federal securities laws. The federal securities laws provide disclosure requirements and other important protections of which investors should be aware. In addition, the bulletin reminds investors of red flags of investment fraud, and that new technologies may be used to perpetrate investment schemes that may not comply with the federal securities laws.


The SEC's investigation in this matter was conducted in the New York office by members of the SEC's Distributed Ledger Technology Working Group (DLTWG) -- Pamela Sawhney, Daphna A. Waxman, and Valerie A. Szczepanik, who heads the DLTWG -- with assistance from others in the agency's Divisions of Corporation Finance, Trading and Markets, and Investment Management. The investigation was supervised by Lara Shalov Mehraban.

The SEC's decision to "register" ICOs may have a similar effect to its denial to allow a bitcoin ETF, which initially sent the price of bitcoin tumbling but then promptly reversed, and pushed it back to all time highs.

While the SEC's intention to regulate ICOs will probably have an initial chilling effect on the market as it will make issuance of ICOs more difficult, it will also prove to be a blessing in disguise as it not only validates the blockchain capital-raising mechanism, allowing the entrance of major banks to use it as a fintech alternative to IPOs, but considering some of the utterly idiotic and doomed to failure ICOs that have been observed in recent weeks, curb the proliferation of ponzi, pyramid and other get rich quick schemes which in many cases are beyond borderline criminal.

It will also also reduce the risk of drastic losses once the initial euphoria period passes, and only the more serious and credible coin offerings remain as a result, something which ultimately will benefit the blockchain in general, and ethereum in particular.

Ultimately regulation of ICO will greenlight the eventual use of cryptos as eligible collateral in capital markets transactions, something Bank of America said in a report earlier today is critical to truly unleash the crypto community to its next evolutionary step in replacing fiat.

Whether cryptocoin enthusiasts like it or not, regulation (and enforcement) will lead to a sturdier blockchain ecosystem, and while the potential for dramatic upward moves will be limited, so will the likelihood of catastrophic losses.

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NugginFuts's picture

Open shot across the digital bow. Welcome to WWIII - crypto apocalypse!

Just wait till the CBs get involved - first they buy you, then they destroy you.

38BWD22's picture



There are a couple of other troubling developments that have come into play re even Bitcoin. I am watching closely and may dump them after all.

AFTER I do a careful accounting of my cost basis, etc.  [hint]

Jubal Early's picture

Crypto meet Compliance.  Compliance, oh. Crypto has no added value if it has to comply too.

eclectic syncretist's picture

Yeah! I remember when the government cracked down on initial gold offerings. Oh wait, that could never happen.

hedgeless_horseman's picture


You can have my crypto coin when you pry the Trezor from my warm bloody anus!

Croesus's picture

Leave your sex life out of this. Trust me, nobody wants to hear about what you and your "life partner" do behind closed doors.

hedgeless_horseman's picture


How do I get the poop out of the micro USB port?

I hope Satoshi Labs adds a poop cover on version 2.0, and rounder edges.

The retrieval string is a nice touch. 

Herd Redirection Committee's picture

No way that people had foreknowledge of this, and it is part of the mini crash in cryptos earlier today, right?

Hernando98's picture

I'm sure this had something to do with the price crash going on since yesterday.

It was only a matter of time before the US government would begin coming after ICOs. The whole ICO concept is shady to say the least. I'm sure Nakamoto would not be supportive of them.

It's important to buy into real coins that have good fundamentals to them. Pakcoin is one of those coins. You can find out more about it by visiting:

Mr. Universe's picture

So when Central banking takes over will they have ETF's of bitcoins?

Life, who needs it?..Marvin

tmosley's picture

And thus the king commanded the tides.

Only question is, will the tides obey?

Prisoners_dilemna's picture

Nope. This ICO regulation applies to Americans only. Crypto assets are global.

Companies under US jurisdiction may not be allowed to issue crypto assets and they have a door that can be kicked down, but Americans who have the requisite skills will be able to participate in ICOs. Government can't stop the spread of software. Even if the US Govt coerced the ISPs into some nefarious protocol blocking scheme, return to my first point. Crypto assets are global.

There are many jurisdictions that have views on crypto assets which are different from the views held by the US governments.


wee-weed up's picture



"This ICO regulation applies to Americans only."

Ah, but if you are a US citizen, the Gov't has ways to "put the screws" to you...

Just ask those who had "secret Swiss bank accounts."

They WILL get you.

GoldVu's picture

Maybe it's time to take a look at BullionCoin -

The way it works is that participants in the BullionCoin primary market buy physical gold and silver which gets vaulted. They then turn the title of ownership to that bullion into an electronic form - called BullionCoins. They then sell the BullionCoins (title) to investors in the secondary market, who then use them as currency same way as Bitcoin.

  • A BIG plus is that coin creators receive a lifetime income of BullionCoins which is a portion of the transaction fees associated specifically with the coins they created & sold
  • The BIGGEST plus is that all holders of BullionCoins can exchange them for the vaulted gold & silver in the vault and have it sent to them!

Because the coins are effectively being "minted" from existing physical, not created from thin air, it means that there is no ICO. But there is a founding investment window where those initial investors will receive double the payment/yield rate to investments added after the window closes.

You can also transfer existing gold & silver into BullionCoin so you don't have to worry about cashing out and going via the banking system.

SEC regulation is required for "financial instruments". A financial instrument is anything leveraged or not backed by something real - this applies to all cryptocurrencies (except BullionCoin & Tether) and pretty much every financial investment / scheme in existence.

However, BullionCoin has already jumped ahead of the game and decided to be fully regulated in the Isle of Man (which has the strongest cryptocurrency regulations in the world). So no matter what they try to come out with, BullionCoin is well placed and its users will not be affected.

Crash Overide's picture

The crypto "market" is so far ahead of the soldout SEC let them try their best, they can't even manage their own backyard.

They are literally retards with helmets at Monkey Joe's, no offence to Monkey Joe's or the family's with reatrded kids that go to Monkey Joe's....

swamp's picture

Australia has ATM's of bitcoins.

ReasonForLife's picture

Will you need the government to wipe your butt for you too if you shit yourself someday?

inhibi's picture

How unsurprising that when its bad news for BTC, all the fanbois STFU and are nowhere to be seen.

So who was it yesterday that bemoaned my mention that cryptos are to be treated more like stocks than currency? Whoever it was, he aint on this message board. 

This outcome shoudlve been obvious to anyone with common sense: as if the Banks would allow crypto's the decency of a level playing field.

38BWD22's picture



There are new tools almost upon us that will correlate BTC transactions, inc. old ones on hardware.

Beware.  DO think about complicance, or at least prepare, like cost basis, etc.

TwelveOhOne's picture

It's only taxable if you made money from the government.  See

MANvsMACHINE's picture

I would think you only pay tax when you sell and go back to USD.  If I buy a Bitcoin for $2,000, then when it's at $2,500, I convert it to ETH, I wouldn't think I owed any taxes on that "gain".


johngaltfla's picture

This is going to leave a mark.

If anyone thinks this is going to escape the IRS or Treasury, ask those who held paper rights to Perth gold that worked out when they tried to sell their rights claiming the gold as "collectibles."

swamp's picture

And when the dollar rises against the Swiss franc and you can buy more Swiss cheese do you also need to report that to the SEC or IRS?

Jubal Early's picture

Every time you move from one crypto to another you are required by the IRS to convert both sides to the dollar equivalent value.  Otherwise one could simply evade capital gains forever by never converting back to dollars.

Here is another worry for you:  In these BTC transactions fractional BTC are always sent back to the BTC seller to round out the transaction.  These balancing entries are not made at the time of the transactions, but at the time of the balancing.  This would be at a different exchange rate.  Will the (((IRS))) require these fractional, time delayed balancing transactions to be accounted for too?  That depends on your religion.

Big Creek Rising's picture

Yes, do prepare. NSA knows your every keystroke and will be happy to pull the retrieval string for your memory (joy?) stick.

SEC is just another 3 letter agency reminding us all that


cheech_wizard's picture

Not exactly the mental image I want to carry with me until it's time to head home from work.


hedgeless_horseman's picture


I regret to inform you that you are not a good candidate for employment with the TSA.

Implied Violins's picture

I wouldn't touch that one with kid I guess I'm not, either.

Pladizow's picture

Crypto wallet + Zug Switzerland + VPN = Fuck off SEC!

SPONGE's picture


But, here's a question for all...

At one point the value of a bitcoin was tied to the cost of the computing power (servers, space, and electricty) needed to mine the coin. That all made sense to me, just like the cost of gold and silver represents the labor and costs to dig it out of the ground. Now it seems most buyers are more interested in bitcoin as a speculative investment instead of a stealthy store of value.

How much does it cost in electricty to mine one BTC? Any value above and beyond that cost can be fucted with endlessly by gov't as shown in this article.

I realize that the same could be said about gold and silver, except that 5000 years of monetary history as a failproof store of value is not insignificant.

Your comment shows that you are doing it right, (out of regulatory sight), but, at the current price of BTC, isn't a large part of that above the cost of mining which would suggest that this added speculative portion of the price relies on demand being high? How many people are going through Switzerland and using VPN's? Are the masses doing this? Are you going to lose 50% of the demand when the gov't agencies start scaring "investors" away? 70%?.

What will this do to price?

The other original strong point of BTC was the idea of a finite number of coins, but now with 100's of different coins, the whole idea of finite amounts is also thrown out the window.

Honest questions - I am not anti crypto, just skeptical 

dussasr's picture

Re: At one point the value of a bitcoin was tied to the cost of the computing power (servers, space, and electricty) needed to mine the coin.

This is a common misunderstaning.  The mining cost adjusts to match the price and not the other way around like a traditional commodity.

The price of bitcoin is primarily driven by supply and demand (speculation), not cost.  Once the market determines the price, the cost of mining increases or decreases until the marginal cost of mining aligns with the price.  This is possible because of the difficulty adjustment in the mining algorithm which readjusts every two weeks.

SPONGE's picture

Wow, seriously? I didn't know that. That's pretty smart.

My other points still make me skeptical at this stage. 


daveO's picture

SEC protects BTC(and maybe McAfee's privates) by slowing down newer entrants.

Mike Hunt III's picture

Many cryptocurrencies have been created over the last 8 years. It's hard to say how much wealth is going into those new cryptos that would otherwise be going into Bitcoin and raising bitcoins price even higher. But Bitcoin has several network effects that I think will prevent newer cryptos from making much of a dent in Bitcoin in the long term.

Suleyman's picture

The answer is that the price comes first - determined by demand and supply (someone who has coins and want to sell them at a price point). Then mining follows - the cost of mining tends to approach the coin value. The same for mining gold, that is why the word mining is used for finding the remaining hidden coins.

dark fiber's picture

Of course FATCA can always be extended you know.  Switzerland has been proven unreliable. 

Crash Overide's picture

Crypto's can replace the banking system eventually, the bank's won't go quietly but the math is not in their favor, it's a matter of time... there is the opportunity for mankind to release themselves from the fiat debt slavery and control their own financial destiny if done properly. Not saying it will fix everything but decentralized banking might be a step in the right direction.

DownWithYogaPants's picture

So in other words we don't want to let anyone but the big boys run wild.  

I prefer the wild west to the psychopaths in Washington DC.

Bobbyrib's picture

If only there was a physical coin, that had intrinsic value, made of rarer metals, that you could own. It has been thousands of years and no one has come up with this idea!? /sarcasm.

e_goldstein's picture

Yeah, at least in the wild west you could shoot or hang theives.

38BWD22's picture



@ Jubal Early

Yep, you got that one fast.  Certain, erm, capabilities have increased faster than well-known BTC commentators predicted.  We may be entering a danger zone for crypto that I had not foreseen (better said: came faster than expected).

And, yep, I'll get my duckies in a row for when the time comes to comply.  Which, alas, it looks like is going to.  

Troubling talk among certain smart people at alerted me to all of this.

Crypto Kevin's picture

No link? Which capabilities? 

RedDwarf's picture

"Crypto meet Compliance.  Compliance, oh. Crypto has no added value if it has to comply too."

Good luck enforcing compliance.  For example this ruling only applies to the ICO, not later sales.  Further it is trivially circumvented with a VPN.

CH1's picture

Off to Switzerland they go!

cro_maat's picture
  1. This was a press release - no new regulation was issued
  2. ICOs will continue to be registered in Switz., Hong Kong and Singapore - but they will restrict US citizens from participating so that they won't have to deal with the USSA SEC Stazi
  3. Are all of the women on the SEC blockchain committee dual citizens from a certain apartheid ME country?
38BWD22's picture



If you mean ICOs, then yes, I guess so.

*   *   *

But, DO watch fast developing capabilities among blockchain monitoring companies, it looks like they can defeat mixing now (or will very soon).

The Big Rhino (.gov) has tools, with more tools coming, and they are getting better.

dussasr's picture

The mixing in DASH PrivateSend has never been broken.  It fixes all the typical tracking methods used to analyze the typical bitcoin coinjoin type of mixing.  Check out

CH1's picture

Just wait till the CBs get involved - first they buy you, then they destroy you.

... he writes hopefully.

The desire to destroy will destroy you.