SEC Promises Plain English on ICOs, Will It Deliver?
The SEC promises plain English to help startups and investors navigate the ICO labyrinth. While it possibly suggests the watchdog has been doing its homework to create workable regulatory solutions for the industry, one question remains: will it actually deliver?
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SEC Inactivity and Inconsistency Has Harmed Cryptocurrency in the US
The U.S. Securities and Exchange Commission’s disjointed narrative on cryptocurrencies and ICOs has sapped Americans and ICOs of the confidence they need to proceed with innovation in the nascent industry.
On June 14th, 2018, top SEC official William Hinman further confused the issue by saying at Yahoo’s All Markets Summit: Crypto that ether, in its current form, was not a security:
“When we look at how Ether today is operating we see a highly decentralized network, and we don’t see a central third party.”
The Howey Test deems something to be a security if it is sold to investors, with an expectation of profit arising from the efforts of the issuer. Investors are passive in that process. However, the language of the full speech clearly suggests that the original issue of ether probably made it a security:
“And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.”
SEC Dances With Incongruities and a Refusal to Name Names
When the SEC decides to “put aside” one part of a token’s journey, particularly the first part, it creates a distinct lack of clarity around issuing tokens. They mostly risk being considered securities in the beginning, even if at some point they end up not being deemed securities because they are sufficiently decentralized and lack a third-party whose efforts are significant determinants of that token’s success.
When the SEC announced in March that an exchange offering trading in cryptocurrencies would be required to register as a national securities exchange, bitcoin plunged ten percent in the confusion that followed.
As Spencer Bogart of Blockchain Capital remarked, “The SEC continues to draw a line in the sand between securities and non-securities but without going so far as to name names.”
Finally, the SEC Promises Plain English
On Monday at the D.C. Fintech Week Conference, William Hinman finally conceded the end was nigh on the regulator’s reluctance to issue clear and definite guidelines. His statement suggests token creators will have more clarity on how their offerings would be deemed, as well as avenues to approach the watchdog and seek clarification.
“We also will be putting out more guidance, the idea is a plain English instrument that people can look at and they’ll bring together sort of my Howey-meets-Gary speech, and that analysis … We’ll elaborate on that in a very plain English way, so ‘do I think I have a security offering,’ look at that guidance and you should be able to sort things out.”
There is no indication when the SEC will deliver on its promise for plain English guidance, but it is likely not far away.
Have your say. Has the SEC damaged the ecosystem by failing to communicate with crypto industry participants? Do you trust that the SEC promises plain English for future token issuers?
Images via Pixabay