With all of the news lately regarding the SEC cracking down on ICO's and contemplating what it means to us all who love ICO investing, I began looking into the SEC and some of the things they do. Everyone is talking about the SEC regulating ICO's but nobody is saying anything about how exactly that will change things. I'm no financial legal wizard but below is the sense I've been able to make of it thus far.
Filing Fee Rate
The current fee rate for 10/1/2016 to 9/30/2017 is:
$115.90 per $1,000,000
The fee is calculated by multiplying the aggregate offering amount by .0001159
Filing fees are required for filings made pursuant to:
Sections 6(b) of the Securities Act of 1933
Sections 13(e) and 14(g) of the Securities Exchange Act of 1934
So, basically this means that an ICO will likely need to put a cap on their offerings and pay $115.90 per million offered. Or, pay the fee for every million investors bought into.
I've also found a list of exemptions offered by the SEC which appear to be based on the a variety of things associated with the total size of the security.
Regulation D — Rules 504, 505 and 506
The only filing requirement under each of these exemptions is the requirement to file a notice on Form D with the SEC. The notice must be filed within 15 days after the first sale of securities in the offering. Many states also require the filing of a Form D notice in a Regulation D offering. The main purpose of the Form D filing is to notify federal (and state) authorities of the amount and nature of the offering being undertaken in reliance upon Regulation D.
Rule 504. Rule 504, sometimes referred to as the “seed capital” exemption, provides an exemption for the offer and sale of up to $1,000,000 of securities in a 12-month period.
In general, you may not use general solicitation or advertising to market the securities, and purchasers generally receive “restricted securities.” Purchasers of restricted securities may not sell them without SEC registration or using another exemption, which is further explained below under the heading “Resales of restricted securities.” Investors should be informed that they may not be able to sell securities of a non-reporting company for at least a year without the issuer registering the transaction with the SEC.
Ouch, so basically this exemption means you can only offer $1m in a security over a 12 month period and basically can't advertise the sale of it and the investors cant sell their securities for at least a year. This eliminates all ICO's.
Rule 505. Rule 505 provides an exemption for offers and sales of securities totaling up to $5 million in any 12-month period. Under this exemption, your company may sell to an unlimited number of “accredited investors” and up to 35 persons that are not accredited investors. Purchasers must buy for investment purposes only, and not for the purpose of reselling the securities.
Pretty much the same deal. Investors cant sell their securities without registering the transaction with the SEC. Ultimately, all of this evolves around basically paying the SEC their cut and the only reason they are coming down on ICO's is because its a nice big pie they want a piece of, all under the vale of safety, of course.
If you would like to read all of the exemptions you can find them here https://www.sec.gov/info/smallbus/qasbsec.htm#regd
I however dont necessarily see all of this SEC hoopla as a bad thing. So you pay $100 per million generating and follow the rules of making sure everything associated with your security, i.e coin, is legal and safe. So what? Small ICO's with a legit business idea/venture can still establish up to a million bucks in seed capital which lets face it, is still significant for the majority of these ideas and if you want more, well, you have to pipe into the SEC so they can monitor you.
I'd love to see your comments. Lets discuss this!