An Initial Coin Offering (“ICO”) is the first time a blockchain-based company sells its cryptocurrency to the public. ICOs provide any blockchain entrepreneur the ability to quickly receive funding from anyone in the world. While ICOs show the potential to become a legitimate alternative to traditional early-stage investing, like angel investing and venture capital, ICOs are currently teeming with fraud and bad actors. Recent celebrity-endorsed ICOs have scammed customers, and hundreds of millions of dollars have been stolen from hard-working people. Anything goes in this current, unregulated ICO space. This article proposes five potential ICO-specific regulations for the Securities and Exchange Commission (“SEC”) to pass in the next 12 months. First, the SEC should broaden the definition of a security to include utility tokens which will allow the SEC to have authority over this space. Second, allow companies conducting an ICO in the U.S. to satisfy a more lenient securities filing requirement. Third, allow people of all backgrounds to participate in ICOs, not just accredited or sophisticated investors. Fourth, create a private right of action for token buyers to sue blockchain companies who make fraudulent statements in its filed white paper or token registration. Finally, extend securities fraud liability to fraudulent ICO advertisements. The goal of these proposed regulations is to balance the needs of all parties involved: removing fraud from the market, prioritizing investor confidence and security, and increasing development of blockchain technology’s potential. While these regulations will not solve all cryptocurrency-related problems, passing them is a good first step.
Taming the Wild West: How the SEC Can Legitimize Initial Coin Offerings ("ICOs"), Protect Consumers from Bad Actors, and Encourage Blockchain Development,
Bus. Entrepreneurship & Tax L. Rev.
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