The SEC has assumed a growing regulatory interest in ICOs in response to complaints by investors and financial institutions. In 2017, the SEC issued several positional statements on ICOs and went so far as to shut down those ICOs which it had determined to be perpetrating fraud on their investors.
Currently, the SEC has found that ICOs fall within the jurisdiction of its Reg A, Reg D and Reg S classes.
A quick summary of the key features of each category will provide ICO investors and managers a starting point for further research.
Regulation A was updated in 2015 to support early stage and smaller business investments. It provides a means for these smaller sized companies to publicly offer their securities, setting a maximum of $5 million raised in any one year period.
Regulation D overlaps with Regulation A in several key areas including the $5 million within a one year period limit to less than 35 investors or a maximum of $1 million within any 12 month period. One significant difference with Regulation A is that Regulation D provides for certain exemptions allowing larger offerings without being subjected to the regulation guidelines. However these require that special filings disclosing investors and owners be made with the SEC.
Regulation S is where a lot of the launchers of new ICOs are finding themselves recategorized. Under Regulation S, businesses can raise money from investors without being required to adhere to any compliance under the Securities Act of 1933, so long as their investment instruments are offered solely outside of the U.S. A two edged sword for firms that want the lack of regulatory requirements but find themselves without access to American investors as a result.
While regulatory challenges create barriers for new U.S. startups looking to enter the ICO market, the Regulatory exemption models do allow for smaller companies to get launched with minimal regulatory oversight, in the end protecting investors and ensuring that new ventures keep their funding within reasonable multiples of their revenues and assets.
Cryptocurrencies and ICOs are traded on exchanges located in Europe, South Korea, Great Britain and the U.S.
About Jordan Lindsey
Financial and assets management professional and cryptocurrency expert, Jordan Lindsey has 20 years of industry experience.
Jordan Lindsey is the founder of JCL Capital and is on the advisory committee of Energia Global.