SEC-watchers regularly quote Chairman Clayton’s statement at a February 2018 Senate hearing (“I believe every ICO I’ve seen is a security”) as evidence of the SEC’s strict view of ICOs.  During a speech yesterday at the Medici Conference, SEC Commissioner Hester Pierce took a different tact.  Asking, rhetorically, whether ICOs offerings are securities that have to be registered or qualify for an exemption, she said that the answer should be rooted in the well-know Howey test.  She then went on to say:

This is not to say that all ICOs must be deemed securities offerings.  Given the undeveloped nature of this area, I am wary of any blanket designation for all ICOs.  Instead, the best path forward, at least for the time being, is to evaluate the facts and circumstances of each offering.

Commissioner Pierce also expressed the view that sandboxes for ICOs is not the best approach to regulating tokens.  (A regulatory sandbox is where authorities temporarily relax certain regulatory requirements and allow testing of ICOs, all the while monitoring what is happening and providing feedback).  While noting that sandboxes are being used successfully in place like  Singapore, the UK and Abu Dhabi, she said:

The motivating notion behind a regulatory sandbox is that the regulator in a sense sits in the sandbox with the innovator. Not only is she right there to make sure that nobody gets hurt, but she has a front-row seat on the innovative process. She sits at the entrepreneur’s shoulder as he thinks through how to address structural and aesthetic weaknesses in his sandcastle.

Talk of sandboxes is welcome, and my fellow regulators’ sandboxes have already yielded great dividends. Given that we are in Los Angeles, however, I would rather talk about beaches.  On a beach, the lifeguard watches over what is happening, but she is not sitting with sandcastle builders monitoring their every design decision. From her perch on the lifeguard stand, she can spot dangerous activity and intervene with a blow of the whistle or, if necessary, a direct intervention. She always stands ready to answer questions about the rules of the beach. She puts up the red flag to warn of dangerous riptides or sharks.

In the world of securities regulation, what does a beach look like? The regulator monitors the landscape, steps in to stop violations when they occur, and stands ready to answer interpretive questions as people seek to understand how the rules apply to their situation. Engagement with the regulator is welcomed, but the regulator leaves ample room for innovators to develop their ideas without the regulators sitting at their shoulder taking part in each creative decision.


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. David has been included in Chambers for his expertise in international arbitration. He is the editor of the firm's blockchain blog.