If you have been paying attention at all the ridiculousness of the ICO space, you should have known that the SEC was going to step in eventually. Part of the reason that people are choosing to ICO their companies rather than fund them through traditional means is because they can avoid regulatory oversight, or so they thought. However in the last few days the SEC says that they considered the DAO, which was basically an ICO with a different name, that was hacked and caused the Ethereum blockchain to fork, a security.
Along with the statements they made about the DAO, they also used language that strongly points to the suggestion that current ICOs being offered are considered securities as well. This would mean that if any company or organization sold to a single United States citizen, they are in breach of securities laws and could face heavy penalties and very likely jail time. It was only a matter of time before the SEC was going to crack down and it looks like this is just the beginning.
This is why I have been saying this entire time that if an ICO is from a company or from an organization that can be centrally attacked, it is no good. The US or any other country could easily arrest a single high ranking member for securities fraud if the ICO became too big. This is why bitcoin’s decentralization makes it much safer, there is really no one to arrest. Sure you could arrest the developers, but they haven’t broken any laws by simply coding upgrades, they aren’t a company that can be shaken down.
Many companies doing ICOs knew that eventually this would come which is why they put in their term sheets that the tokens didn’t actually represent anything in the company, but I think the SEC won’t care. Just by releasing the ICO, the SEC might still be able to hold them accountable for massive fines. I would be weary if you are invested in an ICO, especially one where the founders are in, or incorporated in the United States. Someone is going to go to jail, even if it is just to make an example of them.
Going forward I expect more companies to put in their term sheets that the tokens don’t actually represent anything, or they will not sell to United States customers, like we have seen with certain exchanges. This isn’t the end of ICOs, but this is definitely a warning call if you have a large amount invested into them. You might want to start looking for an exit if you think that the company you bought an ICO from, could easily be reached.
The United States has shown before that they take securities fraud very seriously and will go to any lengths to get the people that break the law. Alone in bitcoin we have seen many people like Charlie Shrem go to jail for lesser offenses. If you are going to be running an ICO, don’t fly into New York, you might not leave.
Thanks to @Elyaque for the badges