Jason Seibert, esq. leads a small law practice focusing on securities fraud, transactions and fiduciary duties, and host of the "I'm Not Your Lawyer" podcast.
The following article is an exclusive contribution to CoinDesk's 2017 in Review.
Since 2015, people have asked me what I think about all kinds of things in the crypto-securities world.
After working on the SEC v. Shavers case, I had the opportunity to speak at several locations, and to consult with a lot of businesses. Each time, I would calmly explain that initial coin offerings, so-called ICOs, were securities offerings.
The response would range from outrage to unmeasured vitriol.
I recall speaking in Las Vegas at a conference put on by Oracle. There, I answered questions from the audience, and later in the hallway a man who helped found ethereum, came up to me and said something along the lines of, "Dude, what's your deal, are you a fed or something?" My answer was simply, "No. I just don't want everyone to be surprised when regulation comes down hard."
His response, "Well, they haven't done anything yet, so that means they aren't going to, right?" "No," I replied simply.
The discussion that followed was the same one I've had with many over the past couple years. They have to believe that they've found the magic secret to get around law and regulation. That the ultimate "AH HA!!!" happened is a dream has haunted many companies I've spoken with.
I simply reply that:
"The government is patient. The government has rules and regulations and unions. The government is not comprised of caffeinated coders that work 100 hours in two days whilst flaming newbs in chatrooms. The government has a process, and that process must be followed."
Hear ye, hear ye
As The DAO was contemplated, I recall, specifically, having a phone call with a prominent New York bitcoiner who was gloating that The DAO had solved the Howey Test and that regulators were finally out of crypto.
I disagreed, explained horizontal and vertical commonality, and noted that under several cases, including my personal favorite, SEC v. Glenn Turner, these were securities. There was nothing but laughter on the other end of the phone.
*Sigh.* Then The DAO imploded.
In January 2017, I attended The North American Bitcoin Conference (TNABC) and sat on a legal panel with Drew Vander Hink and Adella Toulon-Foerster in the bathroom hosted by Chris DeRose and Junseth (then Bitcoin Uncensored) and moderated by Tone Vays.
I must have sat on three or four panels that weekend on the air, and figured out that through a show I could reach more people and give them the advice they NEEDED – not the advice they wanted. I started with Charlie Shrem and that ridiculous Jason Granger Mainstreet Investment and didn't look back.
I dedicated about an hour each week to breaking down ICOs and explaining how they violated securities laws or how the terms and agreements were scams.
I did it all for free as pro-bono work for the industry. … doing "God's work" as Marco Santori once commented to me about my efforts with Shavers.
Having my cake and eating it
Then, it happened, July 25, 2017. SEC Release 81207 – Report of Investigation Pursuant to 21(a) of the Securities Exchange Act of 1934: The DAO. (*note – the SEC spent nearly two pages discussing how SEC v. Glen Turner applied)
I went on the air that night and started taking calls and having discussions with various luminaries in the bitcoin world. Rhiana came home from the store while I was on the air and walked into my tiny home office carrying a cake.
On the top of the cake it read, "I'm Sorry I was Right."
I laughed so hard I had to take a break. I then ate cake for the next two hours live on the air. I ended the show with my usual closing, "I'm not your lawyer, but I could be…"
Since that date, I've advised dozens of ICOs on proper formation of utility and software tokens and am defending an SEC inquiry into an ICO from last year.
I've worked with clients all over the world. I've advised legislators, drafted proposed regulations, spoken with prime ministers and visited countries I honestly didn't know existed. It's been a hell of a ride.
Not full yet
I-told-you-sos aside, you may be wondering where ICOs go from here.
Hard to say. I'd like to see legitimate offerings taking advantage of the quick and easy systems set up by regulators, but it seems more often than not, ICOs want to skirt regulation and dare the SEC to come after them. That's not the best way to go.
I think part of the limitation of legitimacy is that there are very few markets in existence or on the horizon where security tokens can be traded, and using those exchanges means having to identify yourself as an investor.
The anonymous nature of crypto also works against compliance.
I think, as I suggested many times over the past year, if the industry regulated itself, if the exchanges actually had requirements for listing (other than whether or not the coin can pay the listing fee) – like some form of diligence and verification of legitimacy – we might move in the right direction.
But, in my opinion, so long as there are venues for trading ICO coins, there will be less incentive for the related projects to use a registered and compliant exchange.
I hope to be wrong.
Counterpoint? CoinDesk is open for opinions as part of our ongoing 2017 in Review. Email email@example.com to share your take.
Cake image via Shutterstock