An Initial Coin Offering (“ICO”). Is it an unidentified (not flying) object or an offer of securities, like any other stock or interest you’d buy in a company?
Whether you are buying into or issuing an ICO of cryptocurrency, the question isn’t an academic one. Until recently, whether an ICO was considered an offer of “securities” within the meaning of federal law was relatively undecided. As a result, whether you were safe — or not — in trying to use various exemptions, such as private placements of securities under Regulation D, was up uncertain. That appears to have changed.
Recently, the federal government sought to indict defendant Maksim Zaslavskiy for securities fraud and conspiracy to commit securities fraud. Mr. Zaslavskiy’s argument in support of dismissing the government’s indictment was that the digital currencies involved weren’t “securities” akin to stocks or bonds. However, the United States District Court for the Eastern District of New York court found that a reasonable jury could find that his digital currencies satisfied the test of a “security” within applicable case law.
Whether this decision withstands scrutiny on appeal, if it is appealed, remains to be seen.
That being said, if you are operating in the cryptocurrency world, the best way to deal with an ICO is to comply with applicable federal (and state) exemptions to the otherwise cumbersome securities registration requirements.
In so doing, you can buy into or carry out an ICO without looking over your shoulder.