Well it was about the damn time! A lot of ICOs are borderline (or just straight) scams. There have been even cases where the ICO funds have been "stolen" but rumours say the founders just took the money and ran.<p>A lot of the so called "products" and "businesses" pitched by these ICO companies are just well known already working models somehow <i>forced</i> into the blockchain with the only reason being the ability to do an ICO (and generate an absurd amount of money for the founders).<p>Another common feature of ICOs: there's never any equity on the table. The founders are gonna cash in on the ICO and then later do an exit (sell the company, IPO, whatever). ICO "investors" are not gonna get much for their money here.<p>At least during the dotcom bubble some companies made it and the investors then got real equity for their money.
I spent 30min on the phone with Mark Vilardo, special counsel at the SEC and the guy who will call you if you all questions about ICOs.<p>Basically, ICOs are 99% of the time classified as securities in the US. The main exception is if the token is non-transferrable or can be returned for what you paid for it. So, if you can't make money selling our trading it, it's not a security, which defeats the purpose of an ICO.<p>It sounds like who the SEC goes after is subjective, but at any point in time they could bring a suit against an ICO, even gimmick coins.
It's nice to see action like this being taken in cases so blatantly fraudulent. One thing to take note of here is that the reason why the SEC is taking action is not simply because of reasons related to tokens or securities, but instead due to defrauding and lying to investors.<p>Hopefully we'll see more cases like this happening to the actors that deserve them the most. I need not mention names since I think others will do that for me.
Here's the site for:
ReCoin - <a href="https://101recoin.com/en" rel="nofollow">https://101recoin.com/en</a>
DRC - <a href="https://drc.world/en" rel="nofollow">https://drc.world/en</a><p>Couple of things which are noticeable first up are:
a. ReCoin at least attempts to appear legit by having a "team". DRC doesn't even do that.<p>b. While some (most?) ICOs do not have a convincing reason for using ethereum or blockchain, this one takes the cake. The only reason for using blockchain is..well because "blockchain".<p>c. The sidechain is called "Altcoin" for Recoin. DRC doesn't even get that mention. On looking through the whitepaper for DRC, there is a mention of the sidechain but nothing on site. So DRC site looks like a rush job when compared to Recoin ;)<p>d. Quite a lot of coins avoid SEC by kinda of ensuring they are not shares in something but paying for an unreleased product. They also try and mention that coins don't have an explicit real world value. But DRC and RECoin do neither of these.<p>e. These guys are based out of US, so quite easy for SEC to take action too.<p>Devil is in the details. It will be interesting to know how the complain landed on SEC's desk.
This one sounds bad, but the problem with the Howey test is that it's overly broad. Anything from presales in a Kickstarter to ICANN selling those new domain names (like .attorney) to selling tickets to a yet-to-be-arranged event could all be considered a security under the Howey test. It's just too broad and nobody knows where the SEC will draw the line. It would be good for everyone if the SEC would simply explain on what would make a ICO legit, because currently their guidance is still too unclear. It's like they want the ability to selectively prosecute anyone, not caring that the regulatory uncertainty is keeping legitimate, risk-adverse teams away, which doesn't help.
1. The amounts raised so far are small, a few $100k. That's tiny compared to what ICO lose in hacks.<p>2. These are not high tech crypto startups, as most ICOs are. This is some guy selling diamonds. The text from the website sounds ridiculous and makes no sense.<p>> "By acquiring at least 1 DRC you will claim the membership in the exclusive Diamond Reserve Club (DRC) with privileges such as access to the blockchain transactional databases"<p>A non-event for ICOs
It looks like the SEC is starting with the worst scammers. They've also been phoning up ICO promoters, and having a little talk about what's a security.<p>CoinMarketCap lists values for 265 known tokens.[1] The biggest market cap is OmiseGo, for which a market cap of over $1 million is claimed. As far as I can tell, owning an OmiseGo token lets you do absolutely nothing.<p>As a joke. someone did an ICO of the Useless Etherium Token. It's totally worthless. They tell you that up front. They raised $95K.[2]<p>[1] <a href="https://coinmarketcap.com/tokens/" rel="nofollow">https://coinmarketcap.com/tokens/</a>
[2] <a href="https://uetoken.com/" rel="nofollow">https://uetoken.com/</a>
In addition to these blatantly fraudulent ICO's, I contend that even the "legitimate" ICO's are a total shitshow.<p>It's not that they raise far too much money for their projects (although they do), its just that without equity in the company performing the ICO you simply don't get alignment of incentives.<p>Guys like Juan Benet talk about this utopian fantasy of coins funding open-source protocols, but think about the reality. A legitimate project raises 15-45million dollars with a stated intention. Even being well funded, it is still highly speculative, and most startups "fail". So the team raising money has 2 options. Spend the entire amount trying to get the protocol going - which will probably fail (as most projects do), or have a half-hearted go at getting the protocol going, and keep the rest of the money - a 100% chance of getting comfortably rich, but further decreasing the already small odds of the project succeeding.<p>If the protocol/token model is so good, then companies can launch a token and use that to feed profits back to equity-holders. There is no reason why investors should have to take their chances on some made-up instrument that puts an extra barrier between their interests and those of the founding company.
These are really bad ICOs (even calling them that is weird because of how bad they are). I think other ICOs aren't likely to succeed for other reasons, but I could say the same thing about most startups. I think it's obvious that an ICO is a more-entrepreneur friendly financing path when compared to really almost any other capitalization method. That doesn't mean it's the right answer, but it is obviously the path that an entrepreneur should choose right now if they can. This is because ICOs are the cheapest cost of capital of any funding source available today.<p>I am not good at predicting how the SEC will act, but I expect this action is a good thing over all. If people think twice before doing an ICO it feels like a step in the right direction. I do think there are some company narratives that make sense as an ICO, but maybe that's just survivorship bias. It's really too early to tell in the lifecycle of crypto.<p>In short, I think ICOs are the cheapest cost of capital so doing one makes sense right now. That might not always be true, which may or may not be a good thing depending upon your perspective. I think it's nice to see some action from the SEC that's clearly aligned with the interests of the public.
All big ICO's are through Switzerland and only allow accredited US purchasers if they allow US at all. SEC will kill the next decade of technology companies and let the EU take it over unless they issue clear guidance like the Swiss. You can apply to FINMA for $15k CHF and go through a standard process to be a verified token. Would love that in USA. After Brexit, expect more ICO's in the UK as well (Funfair is a good example) as they try to do anything possible to boost their economy.<p>Fact: crypto currency will be a mechanism for fundraising startups. Either deal with it or stick your fingers in your ears.
I mean I'm totally sure that the Paris Hilton coin and the Floyd Mayweather endorsed ICO were 100% legitimate business models and that these two examples were just a couple of outliers. /sarcasm
The Colony is looking pretty damned bright right about now.<p><a href="https://blog.colony.io/the-colony-token-sale-7ac14c845bc0" rel="nofollow">https://blog.colony.io/the-colony-token-sale-7ac14c845bc0</a>
Why is the SEC so fast to target initial coin offerings but terrible at actually reining in the financial sector. To be fair I don't know a ton about the inner workings of the street, so maybe I've just consumed one too many movies/articles/whatever but it seems like the SEC is a just handing out slaps on the wrist over there.
This is very similar to the .com bubble in the late 90's. Everyone wanted to get in, there was massive FOMO, and there were legit businesses along with scams, and terrible ideas.<p>There will be a reckoning at some point, but the tech is here to stay. I invest in ICO's that have the focus, vision, and team to build something lasting.
Wrong Headline.<p>SEC has not charged with <i>fraud</i> rather than with <i>violating anti-fraud and registration provisions</i>. Since almost no ICO implement anti-$FCRIME provisions, even honest ICO can be charged similarly.
Obviously we don't know all the facts about these particular ICOs but otherwise this is great news. By going after the least famous, it really shows the SEC is trying to pro business. I expect some sell off in the market from the panic but it's good news for the ETH