SEC Shows Flexibility in Dealing with ICOs

Some good news for startups who rolled out initial coin offerings (ICO) years ago: the U.S. Securities and Exchange Commission (SEC) has said that some of them may be eligible for relief from potential enforcement actions.

The SEC has spent the last year and a half filing cases against companies that conducted ICOs to raise money without registering their tokens as securities.

While giving his opening remarks at the agency’s FinTech Forum in Washington, D.C., SEC Director of Corporation Finance William Hinman said that cryptocurrencies “may evolve into an instrument that no longer needs to be regulated as such.

Transforming into utility tokens

What if a startup existed three years earlier and without a mature network or functional token in place?

He then explained that if a startup sold its token “in amounts that did not correlate to its use case but resembled funding,” that token would be considered a security at the time of the ICO.

If that same startup were then to go the SEC three years later and showed that its token demonstrated utility aspects, there is a chance that the regulatory agency may be willing to work with the company.

We’d likely be able to work our way through a no-action letter,” Hinman added.

Showing the SEC’s flexibility

Hinman noted in the speech that all of the SEC’s actions to date have been done in accordance with the regulatory agency’s existing statutes and rules.

I mention this to show the flexibility of the regulatory framework we are working under,” he said.

Anderson Kill attorney Stephen Palley, who was present at the forum, mentioned that it’s interesting how the SEC is using its existing regulatory framework to accommodate investment tokens that manage to transform themselves into something closer to utility tokens.