Insights from a Seasoned Startup Lawyer


Building a High Profile Web/Software Company

Blockchain and the Law

Many of us have watched the rise of blockchain ICO's (Initial Coin Offerings) and considered some to be in violation of US securities laws.  This week, the SEC published a report relating to a failed ICO, confirming that the issuance was a security and subject to US securities regulation.  Though this report addresses only that entity and its ICO directly, the implication is that similar ICO's (where the coin represents an interest in the profits or ownership of the enterprise) are securities regulated by the SEC.  As such, in the US, they can only be sold to accredited investors (net worth of at least $1,000,000, or income at least $200,000 / $300,000 combined if married).

This is not surprising.  Securities laws are intended to protect the investing public from scams and poor investments.  The ICO landscape is littered with terrible investments and little to no accountability.  Their failing taints what is transformative when used legally.   It can be helpful that there is some reasonable regulation when it comes to these investments.

The SEC is not attempting to exert regulation over all ICO's.  May ICO's are for advance services (similar to the way Kickstarter sells products in advance of production) or other purposed.  The SEC is not claiming that these sales are securities.  Some of these sales may be just as dubious - but not regulated at this time.  

The US Department of Justice also acted this week to indict and arrest the owner of BTE-e, an exchange that laundered stolen bitcoin.  Again, it's not surprising that illegal activities related to blockchain draw attention and action.  

Though a new frontier, this is still the real world, and governed by real world law, which for the most part is there for a reason.