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SEC says initial coin offerings may be subject to securities law

The US Securities and Exchange Commission on Tuesday declared that offers and sales of digital assets by “virtual” organisations — sometimes known as initial coin offerings, or ICOs, or token sales — could be deemed securities and subject to federal regulation.

The regulator’s report stems from an inquiry it launched in response to a sale of tokens by The DAO, a decentralised autonomous organisation that use distributed ledger or blockchain technology to operate.

The tokens, according to the SEC, represented interests in its enterprises and were sold to investors in exchange for a kind of virtual currency known as “Ether”. Investors received certain voting and ownership rights along with their tokens, which they could also sell on certain secondary platforms.

Ultimately, the SEC deemed that the tokens were securities.

The SEC said it was not pursuing any charges or findings of violations but would use the example to caution industry participants:

“the federal securities laws apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using US dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.”

The SEC’s move could complicate the rapidfire growth of the crypto-currency market, which has been powered by decentralised settlement technology known as blockchain. The value of these digital currencies — which include bitcoin — has been estimated to be worth as much as $91bn, although what the tokens actually represent can be unclear.

SEC chairman Jay Clayton said in a statement:

The SEC is studying the effects of distributed ledger and other innovative technologies and encourages market participants to engage with us. We seek to foster innovative and beneficial ways to raise capital, while ensuring – first and foremost – that investors and our markets are protected.