Glance at perspectives of Ketsal consulting, Cosimo ventures on ICO rulings

There have been a flurry of regulatory news and confluence of elaborations around ICO space in the recent past, the SEC, a Brooklyn federal judge and FINRA have made rulings that has continue to define the regulatory framework concerning the operations of sales and trading of digital securities or cryptocurrencies or tokens.

This post highlights maturation of the global ICO marketplace; New jurisdictions seek to emulate success of traditionally ICO-friendly hubs such as Switzerland.

A federal judge ruled that U.S. securities laws cover initial coin offerings. The deeper emphasis is undertaken on newly invented technology including blockchain, AI, IoT, AR/VR, and cybersecurity, as per Ciaran Hynes, the managing partner at COSIMO Ventures, a leading global venture capital firm. He extended his comments on the narrow scope of the ruling: “This ruling copper-fastens the need for regulatory clarity when it comes to ICOs and capital raising in the blockchain space. It is clear that some ICOs and STOs have to comply with securities laws. If you create a token that meets the Howie test, you are likely to be treated by the courts as a security. But this ruling says nothing about crypto projects that do not meet the Howie test.

The judge is determining that this specific ICO has breached securities laws because of the nature of the offering. So, this ruling really doesn’t change the legal framework the industry is operating under now. If established properly and within the rules, this ruling should not affect other crypto projects unless they are similar in nature to this case.”

James Blakemore, Principal of Blakemore Fallon and Co-Founder of Ketsal Consulting, the professional consulting arm of leading blockchain-focused law firm Blakemore Fallon, discusses the preliminary nature of this ruling: “Today’s ruling should neither comfort nor concern legitimate ICO market participants: the court explicitly declined to decide whether the ICOs at issue qualified as securities offerings, and called any debate on that front “premature.”

The court’s order denied a pretrial filing known as a “motion to dismiss”—here, the defendant moved to dismiss the government’s indictment against him. At this early stage, the court was called on to decide only whether the government’s allegations, assumed for now to be true, set forth a crime. Any evidence that the alleged scheme was, in fact, a securities offering made in violation of the law will be provided at a later date. Only then will a jury or the court decide what actually happened in this case, including the status of the ICOs.

In effect, Judge Dearie ruled that if the facts are as the government says they are, and the defendant’s operation was a “straightforward scam” meeting the elements of the Howie test, the defendant could, after a trial, be held liable under the securities laws. But we already knew that. At best the ruling is a reminder to issuers to comply with the securities laws and to investors to be wary of potential scams.”

Nevertheless, the veterans concur that the ruling unlikely to affect the ICO market participants considerably. At the end of the day, ICOs would be considered on a case-by-case basis, depending mostly on whether it passes the HOWIE test. Courtesy: wachsman

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