William Hinman, the Director of the Division of Corporation Finance at the Securities and Exchange Commission (SEC) made some explicit definitions for ICOs, tokens and cryptocurrencies. The major headlines was that Ethereum’s ETH is not a security. However, based on definitions, the initial sale of ETH in 2014 would have been a security.
Essentially, any token used in a fundraising process that can give investors a return, or investors can get a return on the secondary market by selling the token to someone else is a security. So how can ICO’s go about complying with regulation?
ICOs or other tokenized fundraising methods that want to raise money from investors in the U.S. will have to sell the tokens in either a private placement or in a public offering. There are four categories that set limitations on participants, funding total, advertising and resale of the token.
Anyone can participate.
$1.07 million (Limits on investment per investor depending on income or net worth)
Advertising is not allowed.
Cannot be resold in public markets within a one-year period.
Release annual reports and file with the SEC (Form C).
Regulation D 506(c)
Anyone outside of the U.S.
Advertising is allowed.
May not be resold to US investors for a restricted period of time
No public disclosure or ongoing reporting to SEC.
By: BGN Editorial Staff