From the SEC’s website:

“The Securities and Exchange Commission issued an investigative report today cautioning market participants that offers and sales of digital assets by “virtual” organizations are subject to the requirements of the federal securities laws. Such offers and sales, conducted by organizations using distributed ledger or blockchain technology, have been referred to, among other things, as “Initial Coin Offerings” or “Token Sales.” Whether a particular investment transaction involves the offer or sale of a security – regardless of the terminology or technology used – will depend on the facts and circumstances, including the economic realities of the transaction.”

This is, on the one hand, a not unexpected decision by the SEC. For months, participants in the bubbly ICO market have been warned that simply setting up shop overseas will not necessarily insulate them from US securities laws.

What is rather interesting from an intellectual standpoint is the mention of “economic realities” in the SEC’s release. The term has a history, tied to the ever evolving case law concerning the definition of “investment contracts” first initiated in SEC v. W. J. Howey & Co.  (And indeed, the SEC report applies the Howey test to ICOs in its analysis).  But it usually relates to the longstanding quest for a unified concept of “securities” that undergirds the theory and practice of securities law.  In this particular instance, it is signaling a likely robust application of U.S. securities laws in the digital marketplace, in a shot over the bow to the promoters and perhaps even web designers of the exchanges.

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