Left Unsaid: What’s Missing from the SEC’s New ICO Guidelines?

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In the United States, many questions remain around the legal asepcts of the cryptocurrency industry. While the country may not have the slowest legislative system in the world, it certainly doesn’t have the fastest or most agile–therefore, when any US government body even hints at some aspect of crypto regulation, the whole world stands at attention.

In early April, the United States SEC published a set of guidelines for ICOs that had been in the works for nearly half a year. The framework focused on token classification, explaining the circumstances in which cryptocurrencies may be legally considered to be securities.

In order to determine whether or not a token is a security, a number of factors are taken into account, including an expectation of profit, the creation or support of a market for a token, and whether or not a single group of entities is responsible for certain tasks within a token’s network.

The guidance also contained elements of the Howie test, including whether or not there is a correlation between a token’s purchase price and a market price and what the token’s use cases might be.

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The guidance also provided criteria for tokens that have been sold in the past and whose status as a security may need to be reevaluated. These included whether “distributed ledger network and digital asset are fully developed and operational”, whether a token’s “prospects for appreciation” are limited, and whether a token operates as a store of value if it is billed as a security.

What’s New?
Certainly, the SEC releasing these guidelines is significant–in theory, at least, ICO issuers should have a degree of legal clarity that they previously did not.

The guidelines were further iterated in a no-action letter that was sent to TurnKey Jet, Inc., affirming that the tokens issued through its ICO were not securities as long as they kept a certain set of conditions:

• That TKJ wouldn’t use funds from its token sale to develop any part of its platform;
• That the tokens would immediately be usable to purchase air charter services (their intended functionality);
  
• That TKJ tokens would be kept in on-platform wallets;
  
• That the token’s marketing would emphasize their functionality rather than their potential increase in value;
  
• That TKJ will always sell its tokens at a price of US$1 per token, and that each of its tokens will always be worth exactly $1;
  
• And that if TKJ offered to buy back token, it would do so “at a discount to the face value of the Tokens (one USD per Token) that the holder seeks to resell to TKJ”.
  

But exactly what did the new guidelines–and their affirmation in the TKJ letter–really add to the legal space around cryptocurrencies?

The New Framework Tell Us Much of Anything That We Didn’t Already Know
For many, the answer is “not much.”

Indeed, it seems that the guidance and the letter were more or less reiterations of what is already known. “This is an elaboration or what securities lawyers already knew, not that some new ground was broken here, neither making thing stricter nor more lenient,” wrote Jeff Bandman, Co-Founder and Board Member of the Global Digital Finance Initiative, in an email to Finance Magnates.

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Therefore, neither the guidelines nor the letter change much for those who have been following securities laws to the letter. “I don’t think the framework proposes any limitations that seriously affect the way that allegedly compliant ICOs are already running,” ICO Attorney Braden Perry told Finance Magnates.

Indeed, the TKJ letter “is very narrow in the analysis that the TKJ offering was not a security.”
“Specifically, it restricts the TKJ tokens to TKJ wallets, only, and not wallets outside of the TKJ platform. This little room for the exchange of TKJ tokens and other ICOs. This shows a path for compliant use but many other environments and uses exist that are not addressed in this letter.”

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