Initial Coin Offering (ICO) Regulations: New Opportunities, New Risks
Initial Coin Offerings (ICOs) continue to attract attention from start-ups as a capital raising strategy. Despite the recent popularity of this funding method, developments over the last few months highlight the risk of fraud and manipulation in this market. These risks have attracted the attention of US regulators and led to significant regulatory and enforcement activity. Moreover, the rapid development of the ICO market and token issuances left regulators and legislators with little time to react. These and other factors have resulted in an unclear federal and state regulatory landscape for ICOs and digital assets that present significant legal and regulatory concerns for both ICO issuers and secondary market actors (e.g., token exchanges).
In this LIVE Webcast, a panel of thought leaders and professionals brought together by The Knowledge Group will discuss recent US regulatory and enforcement developments in the ICO space. The discussion will include a brief history of ICOs and related regulatory developments, best practices and practical tips for avoiding regulatory pitfalls and enforcement actions, and thoughts on the outlook for ICOs as a funding method moving forward.
Key topics include:
- Initial Coin Offerings: Framework
- Scope and Considerations
- Identifying and Addressing Common Risks and Legal Issues
- Legal and Regulatory Trends and Updates
Seth W. Goettelman, Principal
Kovitz Shifrin Nesbit
- 3 Waves Giving Rise to Security Tokens
- Wave 1 - New Financial Internet
- Wave 2 – Brief History of Raising Money via ICO
- Wave 3 – Rise of the Security Token
- The Appeal of Security Tokens
- Driving Forces – (1) Reducing Regulatory Risk, (2) Facilitating Compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML)
- Applications – (1) Raising Capital, (2) Tokenizing or Securitizing Existing Assets
- Benefits – (1) Efficiency, (2) Reducing Settlement Times, (3) Liquidity
- A Closer Look at Security Tokens
- 2 General Types – (1) Traditional Stock, and (2) Investment Contracts
- What Makes It a Security? Howey Test (1) Is it sold as an investment? and (2) Is there an entity upon whom the investor relies?
- Token Classification
- Why is the token valuable? Utility (is it functional, does it have a use) vs. Investment (speculative – no immediate consumptive use; and
- What creates the value? – Network (like gold) vs. Issuer (like Facebook).
- The Classification can change over time - Being a security may be a transient state.
- Non-Securities are still subject to other regulation – CFTC, FicCen, Consumer Protection Laws
- Plenty of Regulation, Little Clarity
- Howey Test
- Reves “family resemblance” Test
- Risk Capital Test
- Pros and Cons of Security Tokens
- Regulatory Certainty
- Potentially cheaper and faster the IPO
- Model may reserve equity to the shareholders
- Limitations on Who Can Invest
- Secondary Trading and Liquidity Greatly Reduced
- SEC Application of Howey
Scott M. Andersen, Principal
- Industry Trends
- Regulation and Enforcement
- ICO versus STO versus Stable Coin
- The Role for Regulated Intermediaries and Exchanges
Harvey Kesner, CEO
- Regulatory Framework and a little history
- Howey and the DAO
- How SEC comments belie the state of affairs
- What is a security
- Investment Company Act
- Splintering analysis from the top – not a security
- Widely dispersed computing versus security offerings
- Foundations and airdrops
- Singapore or Switzerland?
- Monetary authority by example
- The more things change the more they remain the same
- ICO offerings not exempt in the US – what to do?
- Rule 144 and how to deal with legend removals in a blockchain smart contract era
David G. Adams, Attorney
SEC Enforcement Considerations:
- Extent of SEC authority/jurisdiction.
- Recent SEC actions against ICO sponsors.
- Secondary market actors also targeted.
- Responding to an SEC information request and/or subpoena.
Who Should Attend:
- Technology Companies and Advisers
- Corporate & Securities Lawyers
- Brokers and Dealers
- Digital Finance Professionals
- Financial Fraud Practicing Lawyers
- Senior Financial Management
- Financial Crime Attorneys & Consultants
- Risk and Compliance Officers
- Legal Counsel
- Start Up, Entrepreneur and Small Business Individual Companies or Groups
"Top Rated" by Super Lawyers and "Superb" rated by Avvo.com, Seth's expertise is in complex commercial transactions, corporate governance, securities law, financing transactions, blockchain, cryptocurrency, initial coin offerings, financial regulation, regulatory strategy, mergers and acquisitions, business strategy, and corporate policy.
Seth counsels a diverse range of clients (public and private businesses, incubators, private equity and venture capital funds) in a variety of industries (technology, telecommunications, healthcare, hospitality, manufacturing, SaaS).
Seth is a frequent speaker and lecturer and has extensive experience in the dynamic blockchain industry. He is a member and contributor to the CodeX Stanford Blockchain Group and their academic publication (Journal of Blockchain Law & Policy). The journal consists of peer-reviewed articles and essays that address blockchain technology’s current and looming use cases, regulatory ramifications, and future trajectories.
Seth has been named an Illinois “Rising Star” by Illinois Super Lawyers Magazine; a recognition limited to less than 2.5% of lawyers under 40 years of age.
"Top Rated" by Super Lawyers and "Superb" rated by Avvo.com, Seth's expertise is in complex commercial transactions, corporate governance, securities …
Scott Andersen is principal at Andersen PC, a securities regulatory and defense law firm, where he concentrates his practice on SEC and FINRA defense, and regulatory guidance to funding platforms and portals, broker-dealers, investment advisers and issuers who seek to raise capital, including those participating in cryptocurrency offerings. Mr. Andersen from March 2012 to February 2015 was deputy regional chief counsel at the Financial Industry Regulatory Authority (FINRA) in Los Angeles, where he oversaw all FINRA enforcement cases prosecuted by the Los Angeles office and managed the West region’s attorneys. Mr. Andersen has broad experience with regulatory investigations and enforcement actions. He has led complex criminal and civil prosecutions for the New York State Attorney General’s office, the New York Stock Exchange and FINRA. He has worked on significant matters involving: pump and dump frauds, illegal stock distributions in violation of Section 5, insider trading, research analysts conflicts of interest, market timing/late trading, enterprise corruption, stock manipulation, improper sales of complex products, and supervision and supervisory control systems. His earlier positions include: enforcement director, FINRA, NYC, July 2007 to March 2012; enforcement director, NYSE Regulation, Inc., NYC, December 2004 to July 2007; trial counsel/senior special counsel, NYSE Regulation, Inc., NYC, August 2003 to December 2004; co-chief, Securities Prosecutions Unit, Bureau of Investor Protection and Securities, Office of the New York State Attorney General, NYC, June 1999 to August 2003; and Assistant Attorney General, Office of the New York State Attorney General, NYC, August 1995 to June 1999. He is a cum laude graduate of Albany Law School and is admitted in New York, Massachusetts (inactive) and Arizona.
Scott Andersen is principal at Andersen PC, a securities regulatory and defense law firm, where he concentrates his practice on …
Harvey Kesner has provided legal services for over 30 years. He has represented public and private companies, investors and lenders in numerous transactions involving capital raising, mergers and acquisitions and contracts. He has worked on a multitude of transactions, including internationally. Since starting his own practice September 1, 2018 he has focused on business and finance matters. Previously, he has worked at large NYSE companies, international law firms and pursued personal ventures.
Harvey Kesner has provided legal services for over 30 years. He has represented public and private companies, investors and lenders …
David Adams is a senior associate in Clifford Chance’s Financial Services Regulatory Group. His practice focuses on cross-border broker-dealer and investment adviser regulatory and enforcement work involving both traditional and digital assets, as well as the implementation of distributed ledger/blockchain solutions and payment systems. David has advised on the establishment and operation of centralized and decentralized trading platforms for digital assets issued through ICOs, and the treatment of securities token platforms as Alternative Trading Systems or ATSs. He has also assisted digital token issuers in negotiations with the US Securities and Exchange Commission, and advised multi-national banks, asset managers, and broker-dealers on the establishment of cost-effective and complex cross-border brokerage and advisory operations, including the establishment of optimal regulatory structures across jurisdictions.
David Adams is a senior associate in Clifford Chance’s Financial Services Regulatory Group. His practice focuses on cross-border broker-dealer and …
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About Kovitz Shifrin Nesbit
KSN has positioned itself to be a strategic financial technology (FinTech) legal advisor. Our law firm provides counsel on a spectrum business issues, including: regulatory compliance, corporate formation/ structuring, coin/token sales, securities, commodities, and virtual currency laws. KSN is staffed by more than thirty attorneys and a diverse team of legal assistants, paralegals, and administrative staff.
About Andersen PC
The firm also provides advice to broker-dealers, investment advisers, funding platforms and Title III funding portals, hedge funds and issuers of securities to ensure compliance with the federal securities laws and the standards required by the SEC, FINRA and the state securities regulators, including when raising capital over the internet under the JOBS Act. In addition, the firm provides compliance advice concerning anti-money laundering (AML); the preparation of written supervisory procedures, including supervisory control procedures; independent testing, identifying weaknesses or vulnerabilities, and improving compliance programs; registration; compliance with new rules; meeting fiduciary duty standards and managing conflicts of interests; advertising, including social media; safe harbors and exemptions under the federal securities laws; the appropriateness and legality of certain compensation, fees, commissions and/or other charges; due diligence for offerings or products, including the sale of complex products to retail investors; and accredited investor verification.
In addition, for select engagements, the Firm represents broker-dealers and registered representatives in FINRA securities arbitration matters.
Mr. Kesner founded Darisolutions in 2018 in order to assist companies pursuing digital asset, blockchain and cryptocurrency projects. Recognizing issues in this rapidly evolving arena is essential for new and established businesses. For the past three years, he has assisted publicly traded and start-up organizations facing formation, regulatory, disclosure and structuring issues.
About Clifford Chance
Clifford Chance LLP is a full-service firm with a global platform that allows it to combine top-quality Americas expertise with leading practices across jurisdictions worldwide, including key financial centers. Working from offices in New York and Washington, DC and São Paulo, our lawyers focus on capital markets; corporate and M&A; banking and finance; real estate; tax, pensions and employment; and litigation and dispute resolution.
We are recognized as a leading adviser to the global financial sector and provide multidisciplinary transactional and regulatory advice to established and emerging participants in fintech. Along with demonstrated leadership in both the financial and technology sectors, we leverage strong relationships with regulators to develop practical, innovative solutions for clients that are shaping these converging worlds.