ICO Tokens & the SEC: You Can’t Even Give Them Away …. No, Seriously
Insight Dror Futter · August 21, 2018
The SEC has issued a Cease & Desist Order and sanctions against a token issuer and its founder. Among several findings, the SEC determined that the “Bounty Program” run by the issuer constituted a securities offering. The Order states “a ‘gift’ of a security is a ‘sale’ within the meaning of the Securities Act when the [issuer] receives some real benefit.
Although every securities analysis of an ICO is an independent “facts and circumstances” analysis, the Order calls into question the practice of using “airdrops” as a means of distributing tokens that would otherwise be considered security tokens if issued for monetary consideration. It also may call into question at least some dual token offerings where the second token is a “utility token” offered as a “perk” with all consideration attributed to the primary security token.
In addition to a growing blockchain practice, Dror Futter focuses his practice on startup companies and their investors and has worked with a wide range of technology companies. His fifteen years’ experience as in-house counsel includes positions with Vidyo, Inc., a venture-backed videoconferencing company, and New Venture Partners, a venture fund focused on corporate spinouts. Prior to that, Mr. Futter was Counsel to the CIO of Lucent Technologies, as well as supporting parts of its sourcing organization. Read more about Mr. Futter here.