At a time when ICOs also known as Initial Coin Offerings are making a buzz in the investment circle, the US Securities and Exchange Commission(SEC) issued a report on an investigation related to an ICO by the DAO along with the issuance of an investor bulletin. SEC is an independent agency of the US Federal Government for enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nation’s stock and options exchanges, and other activities and organizations, including the electronic securities markets. The basis of the report is the offers and sales of digital assets being the subject of federal and state securities laws. Even after its findings, SEC declined to carry an enforcement action as it seized the opportunity to inform the public on its views.
In the press release announcing the investigative findings, SEC Chair Jay Clayton stated, “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.” As the SEC opened up its investigations to determine whether these DAO Tokens come under securities law it was to their utmost delight that it came in affirmative under the facts and circumstances presented. The selling of DAO Tokens of a whooping $150 million USD in just a month from the 30th April to 28th May 2016 was enough to redefine the virtual currency by the Financial Action Task Force as:-
- A Medium of Exchange
- A Unit of Account
- A Store of Value
Section 5 of the Securities Act requires the registration of all offers and sales of securities unless there is an available exemption which is based on “Full and Fair Disclosure”. It is also noted that the voting rights of the stakeholders are limited which put them almost on the same track of the almost controversial Multi-Level Marketing. The SEC stated that the voting rights afforded DAO Token holders did not provide them with meaningful control over the enterprise as:
- DAO Token holders’ ability to vote for contracts was a largely perfunctory one
- DAO Token holders were widely dispersed and limited in their ability to communicate with one another
In addition to the report SEC issued an Investor Bulletin which informed the public that these virtual coin or token offerings can invoke the federal securities laws. Apart from imparting the general public the knowledge to the possible potential situations which can be against the federal laws willingly or unwillingly. The Investor Bulletin also patronize about the various technical aspects of cryptocurrencies like Blockchain, Initial Coin Offerings, Virtual Currencies, Virtual Currency Exchange and a lot more things.