An important decision in the world of currency issues was published last Friday by the US Securities and Exchange Commission. The decision focused on two issues of cryo-currency offering (ICO) and provided, for the first time, a look at how enforcement actions against ICO will be conducted in the United States.
The decision also dealt with the status of secondary exchanges for Exchanges, brokers acting as broker-dealers, and the obligation to register funds investing in digital assets.
The SEC filed a lawsuit against two US companies Paragon and AirFox, which raised funds by issuing a currency in the US in late 2017, ie, offering digital currencies to the public in the US. The SEC stated that the companies violated the US Securities and Exchange Act by not listing the currencies they issued, and did not comply with the exemptions allowed by the law.
As part of the arrangement, the SEC apparently set a formula for arranging the issue of cryptographic currency illegally. The issuing companies were required to pay a fine, compensate their investors, and register the currencies issued by the SEC - thereby obtaining the status of a reporting company. Apparently, we will now see additional enforcement procedures against companies that have raised funds in the US through ICO.
These two decisions are almost identical, suggesting that the SEC is creating an enforcement strategy for the ICO, which includes a duty to register as a reporting security, fines and a duty of compensation to purchasers. For companies that have issued a Token in the US not as securities, the loopholes are a warning sign that requires an examination of the SEC's approach.
All the defense arguments of the companies regarding the construction of a unique ecosystem and currency usability are irrelevant when the currency is used to raise funds (and certainly when there is a promise of currency appreciation), in which case the currency is considered a security in accordance with the Howie test. Promises that the currency will be traded on the stock exchange (exchange) to digital currencies strengthen investors' view of appreciation as a result of the issuer's actions, and consequently the status of the currency as a security. Therefore, Token as a fund raising tool requires registration.
Currency regulators who sold currencies in the US should be familiar with this SEC approach and consider their moves with caution, and it is quite possible that other regulators around the world will follow the SEC and act to regulate the currency issue by subjecting securities laws.
