The SEC Begins Treating ICOs More as Securities than Utilities

The security of the crypto sphere has taken a whole new turn as the U.S. SEC has come up with new rules to change the application of ICOs by cryptocurrency startups.

Generally, cryptocurrency startups employ the use of initial coin offerings as a method to gain revenue to help with the growth of their companies. ICOs, usually drafted on whitepapers initially, are used to attract crypto investors who buy their digital tokens to hold and sell them at a later date.

These tokens are usually termed utility tokens or Simple Agreement for Future Tokens (SAFT) and not necessarily listed with the securities agency but the U.S. SEC has changed the rules of the game with the claim that any token used to attract investors should be considered a security and must be in compliance with the U.S. securities law.

The Commission also gave a condition, which you may call grace, to existing startups using ICO as a means of funding to meet an exemption or return the funds collected to the respective investors. The exemption rule requires both old and new cryptocurrency startups to sell their so-called tokens, which are seen as securities in the eyes of the SEC, to only accredited investors – individuals that earn over $200,000 or have a net worth of one million dollars.

In light of the new developments, most of these existing cryptocurrency startups have conceded to return the funds collected to their initial buyers. Returning the funds collected through initial coin offerings may sound easy but it is not actually a walk in the park for companies that have used the funds for their proposed projects. Well, for the fear of being the only company not complying, these companies are being compelled to meet the new SEC requirements irrespective of how difficult the situation may be.

“I believe every ICO I’ve seen is a security,” said the Chairman of the SEC, and tagging them as tokens or utilities is no means for companies to evade compliance with the federal securities laws. They must register as a security offering or gain an exemption. Although gaining an exemption sounds like a good way out, it takes more than just checking boxes as reviewing documentation (such as bank and brokerage statements, tax returns, credit report, etc.); according to the SEC, it is necessary to ensure that the investors are fully accredited.

Some of the companies affected by the ICO rule so far includes but not limited to AriseBank, Centra, Crypto Asset Management and the Fan-Contolled Football League (FCFL), and the U.S. SEC has pledged to see that the new rule is enforced on all cryptocurrency startups.

Well, this may be seen as an aggressive move but it will go a long way to curb the issue of cybercrimes and financial crimes in the crypto sphere.