Tim Lea, а blockchain and ICO expert, shares his expert opinion on recent announcement by the US Securities and Exchange Commission (SEC) concerning ICOs, which are now subject to the same requirements of the federal securities laws as traditional securities sales.
Apart from being a “theorist’, Tim Lea is also CEO at Australian blockchain startup Veredictum.io. The company is currently working on a decentralised, anti-piracy and distribution platform for the film and video industry.
No doubt, this news will cause a ripple throughout the blockchain community, still Mr. Lea believes this can only be a good thing for local organizations looking to raise funding through Initial Coin Offerings as it will ensure security for investors but may introduce some complication with regulatory scrutiny.
Regulation will give clarity and help us all to mitigate risk. At the moment, all of us involved in Token Sales are surrounded by a grey mist of uncertainty where we can’t see the regulatory rails. Given Token Sales have the opportunity to be an ongoing innovative structure for venture funding, having firmer guidelines would help shape best practice techniques that are being followed currently.
Definitely, such changes may affect quite a large number of businesses dealing with Token Sales either on regular basis or not. Still, there are some actions the companies may take to protect themselves.
First get up to date legal advice.
Second, like many already, including ourselves, do not sell your Tokens to US citizens – not only in the US but also outside the US and ensure any syndicates confirm that they have no US citizens that are trying to buy the tokens.
Third, if a business is offering a token that could be seen as a security – e.g. by offering dividends and voting rights – remove those features immediately (after great legal advice). Finally, if the value proposition for your token sale is purely speculative, rather than being an intrinsic part of the platform, consider deferring your Token Sale and re-assess your whole business model.
According to Mr. Lea, new SEC regulations still leave some space for opportunities, which are greater for professional teams who have from the get-go adopted best industry practices. A number of token sales, to his opinion, will pull their Token Sales off the market or re-design their underlying token structure.
Each more or less radical change comprises both opportunities and threats. The situation with SEC announcement is not an exception.
“Realistically, other jurisdictions may well follow suit from the SEC’s commentary. Our upcoming Token Sale is based out of Singapore, so we are watching Singapore’s reaction with close interest. Equally, in the absence of firmer guidelines, collectively many entrepreneurs will make mistakes, however small. On balance of risks, the regulators, given they have limited resources, will, with reasonable expectation, either chase the real bad guys, who they have to show as an example, or those that have raised large sums of funds.” – says Mr. Lea.
In circumstances when agency is signaling that its rules will apply even to non-US token issuers, by having chosen to target a German company in its investigation, Australian crypto economy is likely to be affected too, although to date, no Australian Token Sales or ICOs have created structures locally:
This presents for us, and others, higher risk by registering locally. Indeed, talking to fellow entrepreneurs in Australia they are all registering offshore, Singapore, the Cayman Islands, even Dubai. No-one wants to be the first and I suspect it will be some time before the first Token Sale is seen for an Australian registered company based directly out of Australia. Whilst we personally have had great experiences dealing with ASIC, the stakes are very high when you are the first in a jurisdiction. Your Token Sale will come under very close scrutiny and any mistakes will be amplified. I suspect the SEC comments and the realization that many companies are registering offshore entities, may bring ASIC closer to maybe defining the regulatory rails quicker to ensure Australia doesn’t continue to see companies heading offshore.
Concerning their own upcoming ICO, Mr. Lea stays calm:
For us, it is business as usual – we had already factored in we were not going to sell to US investors globally, so the commentary came as no real surprise to us. Our Token sale is very much selling a token that is intrinsic to our anti-piracy platform and because we have spent 18 months on this project, we designed the token, we believe, to not have the shape of a security. I think it will help make our project stand out a little more ahead of the crowd