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Securities

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The U.S. Securities and Exchange Commission announced today that it charged two co-founders of a purported financial services start-up with orchestrating a fraudulent initial coin offering (ICO) that raised more than $32 million from thousands of investors last year. Criminal authorities separately charged and arrested both defendants. The SEC’s complaint alleges that Sohrab “Sam” Sharma and Robert Farkas, co-founders of Centra Tech., Inc., masterminded a fraudulent ICO in which Centra offered and sold unregistered investments…

The office of Massachusetts Secretary of State announced today that it had halted ICOs from five companies, claiming that the sale of digital tokens amounts to the unregistered offering of securities.  Mattervest Inc, Pink Ribbon ICO, Across Platforms Inc, Sparkco Inc and 18 Moons were all ordered to  stop sales of their coins.  The firms, which were all either incorporated in Massachusetts or named the state as their principal place of business, were offering and…

We have reported in this space about how the SEC has indicated that most ICOs probably qualify as securities under U.S. law. see 1-3 and 1-23.  One of the SEC’s first enforcement actions in this regard was against  Maksim Zaslavskiy for his two initial coin offerings allegedly marketed through his companies REcoin and Diamond Reserve Club.   That was followed by a criminal suit. Yesterday, Zaslavskiy sought to dismiss the criminal case, arguing that the cryptocurrencies…

SEC Chairman Jay Clayton and CFTC Chairman Christopher Giancarlo testified today before Congress on the subject of virtual currencies.  The prepared remarks of both contained very little that they had not already said in previous public comments. (For example, Mr. Clayton repeated that the ICOS he has seen would qualify as a “security” and this need to be registered)  Each also referred to the enforcement actions that their agencies had taken (mostly over the past…

In a speech at the Securities Regulation Institute yesterday, U.S. SEC Chairman Clayton delivered some pretty blunt (and, according to the Commissioner, “stern”) words to lawyers and other professionals.  He said that market professionals need to act responsibly and hold themselves to a higher standard; in the realm of ICOs, he said, “they can do better.” Talking specifically about lawyers, he commented: First, and most disturbing to me, there are ICOs where the lawyers involved…

One of the big questions surrounding ICOs is whether the “coin” (or token) offered in the ICO is considered a security and, therefore, subject to securities laws, including registration.  One of the U.S. SEC’s first official statements on the matter, issued in response to the DAO debacle, was probably most famous for its lack of definitive statements.  It said that:

[F]ederal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale