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SEC tightens the noose on ICO-funded startups

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Re: SEC tightens the noose on ICO-funded startups

#141

Post by CryptoPunk »

jimmaswell wrote: post #94
CryptoPunk wrote: post #52

The laws need to change. The SEC should only get involved when someone defrauds another party through misrepresentation. Mandatory disclosure, registration, and KYC requirements are all infringements on the right to privacy and free contract. That the poorest households spend 9% of their income on state-run lotteries, yet people can't try their hand at investing their own money in businesses/projects that haven't bee…

Exactly this. Half of the regulations the SEC enforces look more to me like nothing but revenue generation and entrenching existing players. Day trading rules are a flagrant example - only rich people are allowed to buy stocks and sell them the same day, not proles.

Former securities lawyer Louis Cammarosano claimed back in July 2017 that 1. token sales are a threat to Silicon Valley and Wall Street, 2. that the SEC doesn't want to bring an enforcement action because they fear that a court will disagree with their interpretation:

https://youtu.be/psqCMwhDxZo?t=12m29s

I guess time will tell.

Re: SEC tightens the noose on ICO-funded startups

#142

Post by Animats »

nostrademons wrote: post #135
lozaning wrote: post #126

Earlier quoted context omitted.

I think the larger issue here will eventually be that the concept of 'the code is law' breaks down when you need to rely on the actual law and law enforcement to to enforce your 'code law'.

I think that's most likely true, but the wildcard is that "actual law" is breaking down for an increasing number of people. There is an increasing perception that existing government institutions and law enforcement are a tool for the wealthy & powerful to oppress the poor, and - whether I agree with that perception or not - when it comes to government legitimacy, perception is reality. This trend comes from outside…

Well, actually the job of the SEC is to oppress the rich.

Re: SEC tightens the noose on ICO-funded startups

#143

Post by tbrownaw »

pitaj wrote: post #130
bobthepanda wrote: post #50

Earlier quoted context omitted.

The point is not to protect individuals, but to protect society from the blowout of every possible stupid investor getting wrecked all at the same time, by limiting the pool of stupid investors. With enough advertising, working and middle class people can be convinced to mortgage their house, their property, their cars, etc. to shovel debt into a stock market that would never go down because the advertisers told them…

Personally, I think we should stop sheltering people from being able to make stupid mistakes. Then maybe people will learn to be a little more skeptical about everything.

As long as everyone makes different stupid mistakes that blow up at different times, sure.

If some measurable fraction all go at once? That's suddenly a problem for the rest of us.

Re: SEC tightens the noose on ICO-funded startups

#144

Post by CryptoPunk »

Animats wrote: post #74

The SEC seems to be sorting the list of ICOs by level of criminality and size, and working down the list. First they went after the ones which were large, obvious, out and out criminal enterprises. As in [1], or "they really didn't have the real estate and diamonds they said they had." And [2], or "they really didn't have deals in place with PayPal, Boeing, and Disney". Then the SEC went after the ones that were mere…

>>We're not seeing ICOs to build factories or farms or do real stuff.

Decentralized prediction markets, CPU-renting markets and ad networks aren't doing real stuff?

Blockchain-based tokens provide little advantage for representing claims to real assets like factories and farms. Where they're most useful is as currencies in decentralized autonomous organizations, since they are programmable and thus can be used in smart-contract enforced compensation/incentive mechanisms.

In contrast, any token representing a legal claim to a real physical asset would certainly not be a utility token. It would be a traditional security, and thus would find much less of an advantage in being on a blockchain, since it can't take advantage of smart-contract based enforcement, given its dependence on the traditional legal system.

That might change in the future if large liquid securities markets appear on the blockchain, but right now the low-hanging fruit is utility tokens for use in decentralized applications.

Re: SEC tightens the noose on ICO-funded startups

#145

Post by CryptoPunk »

CPLX wrote: post #31
Karunamon wrote: post #25

Earlier quoted context omitted.

Disastrous for anyone other than those who jumped in without doing their due dilligence? My main gripe with the whole "accredited investor" thing is that its literally legalized classism (and I'd argue a violation of the equal protection doctrine, but that's another theory), as the income requirements eliminate a huge swathe of investing for anyone but the 1%. Nothing is stopping an uninformed investor from loading t…

As a society we believe that allowing people of modest means to be swindled out of their savings is an unacceptable outcome and have enacted a large battery of laws to avoid it. These laws came about from very real and serious experiences that were, in fact, catastrophic for many communities. It's a real live problem, and it goes back a long way. If you want to argue about the details that's great, but any discussion…

As a society we don't believe anything. Some people believe marriage is between a man and a woman. Some people believe marijuana should be banned for the good of the population. Some, like you, believe that we should prevent poor people from making investments that the government has not vetted.

>>If you want to argue about the details that's great, but any discussion has to start with the reality that an unregulated market leads to really unwanted outcomes here.

Are you saying that the discussion has to start from the premise that on the balance, the outcome of unregulated markets is less desirable than that of a regulated market? Because I would strongly contest that premise.

Re: SEC tightens the noose on ICO-funded startups

#146

Post by m-i-l »

api wrote: post #117
Animats wrote: post #74

The SEC seems to be sorting the list of ICOs by level of criminality and size, and working down the list. First they went after the ones which were large, obvious, out and out criminal enterprises. As in [1], or "they really didn't have the real estate and diamonds they said they had." And [2], or "they really didn't have deals in place with PayPal, Boeing, and Disney". Then the SEC went after the ones that were mere…

There are few ICOs that have even resulted in working cryptocurrency things. I for one am absolutely shocked by the hideously poor quality of the stuff ICOs were used to fund. Excluding obvious scams the remainder seem to be solutions in search of a problem or meandering boil the ocean pipe dreams. None seem well executed, and most dont seem to have shipped at all.

I wonder how much of that is actually a symptom of the whole ICO funding model, i.e. you need increasingly "boil the ocean pipe dreams" to stand out from the competitors, which in turn leads you to raise increasingly large sums, but as the sums raised increase the incentive to actually deliver anything decreases (bearing in mind the money is raised in advance and there is no external oversight to put any pressure on delivering anything).

Re: SEC tightens the noose on ICO-funded startups

#147

Post by lawn »

notahacker wrote: post #51
lawn wrote: post #40

Earlier quoted context omitted.

The obvious difference is transactions without a third party. You can also verify ICO token integrity on the blockchain yourself (via open source apps).

The obvious question is whether that actually matters all that much for securities, since the broker/exchange adds negligible risk and overhead for the buyer relative to the trust in the public company needed to buy a stake in it and the costs of meeting regulatory requirements for public companies. Anybody who's more worried by the potential complications of T+2 settlement when purchasing blue chip stocks than the W…

That is indeed the right question to ask.

Maybe it's less about trust and more about permission. With token based securities I could trade with whomever I choose whenever I want.

Interesting to see how it turns out in the end.

Re: SEC tightens the noose on ICO-funded startups

#148

Post by wpietri »

CryptoPunk wrote: post #121
wpietri wrote: post #68

Earlier quoted context omitted.

That's my impression too. Emily Post had this great rant on how people act like every new technology is exempt from the rules. Her examples at the time was the cellphone in movie theaters. Everybody knew not to talk loudly in the movie theater before the arrival of cellphones, but suddenly plenty of people thought it was ok to a) have a ringing phone, and b) answer it. Eventually everybody got it together again and n…

The scale of filesharing was irreversibly expanded by the internet, and in particular, by BitTorrent. Some technologies fundamentally change the difficulty of enforcing prohibitions against particular types of activity.

If the analogy you're drawing is mp3s to money, it's not a good one. Money has been digital much longer than music; SWIFT was formed in 1973. [1] The MICR E13B font, the machine-readable numbers seen at the bottom of every check, was adopted as a standard in 1958. [2]

Further, since cryptocurrency's use in actual commerce is a rounding error, I don't think cryptocurrencies are even at the mp3 level yet. To be useful to most people, cryptocurrencies need to be turned into real money, which makes enforcement easy enough. It's especially easy here, in that ICOs are big public launches.

Really, anything taking significant amounts of money from non-accredited investors needs to be quite public, because individually they don't have much money. Which again, makes enforcement easy. And also makes it clearly under the domain of the SEC unless they are careful to exclude American investors.

[1] https://en.wikipedia.org/wiki/Society_for_Worldwide_Interban...

[2] https://en.wikipedia.org/wiki/Magnetic_ink_character_recogni...

Re: SEC tightens the noose on ICO-funded startups

#149

Post by CryptoPunk »

wpietri wrote: post #148
CryptoPunk wrote: post #121

Earlier quoted context omitted.

The scale of filesharing was irreversibly expanded by the internet, and in particular, by BitTorrent. Some technologies fundamentally change the difficulty of enforcing prohibitions against particular types of activity.

If the analogy you're drawing is mp3s to money, it's not a good one. Money has been digital much longer than music; SWIFT was formed in 1973. [1] The MICR E13B font, the machine-readable numbers seen at the bottom of every check, was adopted as a standard in 1958. [2] Further, since cryptocurrency's use in actual commerce is a rounding error, I don't think cryptocurrencies are even at the mp3 level yet. To be useful…

No I was making a more general point: that technology can fundamentally and irreversibly change the relationship between people and the government, resulting in certain classes of laws becoming easier or harder to enforce.

Re: SEC tightens the noose on ICO-funded startups

#150

Post by jimmaswell »

icostoss wrote: post #124
bilbo0s wrote: post #102

Earlier quoted context omitted.

Employees are not responsible for every legally questionable thing their company does. That said, I mean, of course a person is responsible for any crimes they may have personally committed. It doesn't matter that your company told you to do it. To believe the law would work any other way is incredibly naive. If this really is how people are thinking about ICO's, then I would strongly urge anyone with possible involv…

It is true that "employees are not responsible for every legally questionable thing their company does". However, a person need not commit a crime personally to be held accountable. Conspiracy charges merely require that a person engaged in otherwise legal actions (e.g. coming up with a list of potential investors, working on code for a demo, etc) had known that the project may circumvent the law in any respect. The…

Being prosecuted for working on code for a demo feels like being prosecuted for building a kitchen because the chefs didn't wash their hands.

If the bar is if they "had known that the project may circumvent the law" then is playing dumb enough to avoid liability? I don't find it morally acceptable that engineers have to take on the legal risk of their superiors' decisions unless it's some kind of extremely blatant doomsday device.

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