Laura Anthony

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    • Member Type(s): Expert
    • Title:Founding Partner
    • Organization:Legal & Compliance, LLC
    • Area of Expertise:Securities Law
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SEC Statement on Digital Coins
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Uploaded By: Laura Anthony, Esq.
Date Added: October 16, 2017
Description: SEC Statement on Digital Coins - On July 25, 2017, the SEC issued its Report on an investigation into an ICO and related activities by the DAO, an unincorporated entity, Slock.it UG (“Slock.it”), a German corporation, and various principals and participants. On the same day that the SEC issued its investigative Report, the Divisions of Corporation Finance and Enforcement issued a statement on the Report. Off the top I notice that the SEC, under Chair Jay Clayton, Commissioner Michael Piwowar and the numerous new executive members, has a decidedly more positive attitude towards business and capital raising overall, than the prior regime. I also notice, through review of enforcement proceedings, that the new regime has not been deterred at all from its mission to detect and prosecute fraud, including micro-cap and penny-stock-related schemes. To begin its statement, the Divisions noted that DLT, blockchain and other emerging technologies have the potential to influence and improve capital markets and the financial services industry. The Divisions “welcome and encourage the appropriate use of technology to facilitate capital formation and provide investors with new investment opportunities,” and are “hopeful that innovation in this area will facilitate fair and efficient capital raisings for small businesses.” However, new technologies also offer new opportunities for misconduct and abuse. The Divisions reiterate the SEC Report’s assertion that an offer and sale of securities must comply with the federal securities laws and that determining whether a particular investment opportunity involves a security involves a facts and circumstances analysis, including economic realities and underlying structure, regardless of the terminology or technology used. Noting that the SEC Report had found that the DAO Tokens were securities, the Divisions caution sponsors and other participants in offerings of digital or other novel forms of value to consider whether they involve a security and thus their obligations under the federal securities laws, including registration or meeting the qualifications for a registration exemption. Market participants that operate a web or other platform that facilitates transactions in securities must also consider whether they need to be registered as a broker-dealer or an exchange, or if there is an available exemption. Although the Divisions statement does not mention it, keeping in line with the fundamental view that basic securities laws apply, a web platform that meets the criteria set out in Section 4(b) of the Securities Act, as created by the JOBS Act, should qualify for a broker-dealer exemption when hosting digital coin or token offerings.
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