Regulation
SEC Fails to Prove Security Token Classification
SEC not all-powerful
The SEC is often thought to be all-powerful, and the only opinion that matters with regards to denoting an asset a security. In a recent turnabout, the SEC has actually had their charges against an ICO turned down.
In a case between the SEC and Blockvest, a United States District Judge stated that insufficient evidence was provided to support the accusation that Blockvest was marketed as a security. The Judge that issued this ruling was Gonzalo Curiel of the Southern District of California.
An excerpt from the ruling states, “At this stage, without full discovery and disputed issues of material facts, the Court cannot make a determination whether the BLV token offered to the 32 test investors was a ‘security’. Thus, Plaintiff has not demonstrated that the BLV tokens purchased by the 32 test investors were ‘securities’ as defined under the securities laws.”
The Defense
In arguing against the SEC, Blockvest had two main points.
- Tokens sold were done so with the intention to simply test the product, and occurred prior to an ICO.
- Due to concerns raised by the SEC, the ICO never actually took place
Due to these two facts, along with a lack of proof from the SEC, the Judge ruled in favour of Blockvest.
This is both interesting and important to note, as the tactics used by the defense will be analyzed by other ICOs that potentially go down the same road. Has the defense essentially created a blueprint on how to justify the actions of ICOs? The simple answer is, ‘no’.
The events surrounding this particular ICO were unique, and will not be applicable to others. In this case, only 32 investors took part, with many being family and friends of the organizers. In addition, the funds raised totaled roughly $100,000. A far cry from the 10s of millions other have raised.
Still in Hot Water
Unfortunately for Blockvest, they are still in trouble. Despite this ruling, the organizers of the ICO face various other potential charges. It is believed that they misrepresented themselves as being regulated by both the SEC and another governing body. Neither of which was true. Both of these misrepresentations have the potential to land them in more trouble.
Blockvest
Based in the United States, this ICO occurred in Q1 of 2018. The company touted their product as an assets exchange, and index fund. It allowed investors, interested in a more hands off approach, the ability to purchase various currencies at once. This fund was comprised of the top 30 coins.
The token to have been issued was ERC-20 complaint, with a ticker ‘BLV’.
Not So Lucky
In recent months, the SEC has regularly been in the news, as they have successfully laid charges against both exchanges and ICOs.
– Airfox
– Paragon Coin
Despite the inability to classify Blockvest as a security, the message is still clear. To survive, companies need to remain complaint with regulations. This means that moving forward, the importance of the development of companies such as Harbor, Securitize, Polymath, Neufund, and others is only increasing. These are the next generation of companies that will usher in the future of blockchain.
