Court ruling could mean good news for ICOs
Many are left wondering where the U.S. Securities and Exchange Commission (SEC) will strike next, after last week’s crackdown on two big-name celebrities. But could another monumental ruling give crypto initial coin offerings (ICO) a better chance against the SEC in the courtroom?
Right now, there’s a rush of enforcement by the SEC spurred by its recent settlement with famed boxer Floyd Mayweather and music producer DJ Khaled. The celebrities have been fined for promoting blockchain projects, coupled with their failure to publicly disclose their business relationships. This is the first time the SEC has brought charges against individuals for promoting ICOs.
While this may seem like a victory for the SEC, ICOs also celebrated a win last week. The U.S. federal court ruled a case between the SEC and an ICO project called Blockvest in favor of the ICO project. According to the ruling, the SEC failed to prove that the ICO was actually a security and the court refused to acknowledge the token as a security based on the method of distribution of the ICO alone.
The court requires the plaintiff to describe the nature of the asset as a security, disregarding how the asset was introduced to the market. This could lead to the SEC and investors in ICOs being more cautious when filing a suit against an ICO project.
Marco Santori, the president and chief legal officer at Blockchain, said:
“According to the court, in the ICO context there must be a ‘risk of financial loss’. This supports the proposition that something like an airdrop, by itself, cannot be a securities offering, even if the airdropped tokens are pre-functional. Admittedly rare today but possible!”
The ruling shows how ICOs can challenge the SEC based on certain technicalities, if they have sufficient evidence.
However, SEC chairman Jay Clayton said he doesn’t feel that this is a blow to the department. He cites the current U.S. regulations as proof as to why ICOs on the market today, should be considered as securities.