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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

#151

Post by pitaj »

awad wrote: post #131
pitaj wrote: post #130

Earlier quoted context omitted.

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.

On balance, it's everyone's right to be stupid and burn their money to the ground. But realistically, in the interconnected world we live in, that will often involve burning other people as well and that's not something that should be OK. The housing crisis had greedy unchecked bankers, but it also had greedy unsophisticated (in a financial sense) individuals over-leveraging themselves and we all paid the price as ta…

The "greedy unchecked banker" narrative is cute, but it completely absolves the distortive effects government policies had on the market before the crash. This included incentivizing subprime loans, Fanny Mae and Freddy Mac, and previously bailing out banks (a signal that your risk will be subsidized in the future).

There is no rule that the State must step in during bad situations, in fact many would argue that the government stepping in makes things worse. We don't all have to pay the price.

The market needs those corrections to learn. If the government steps in every time, it doesn't have a chance to.

Re: SEC tightens the noose on ICO-funded startups

#152

Post by api »

m-i-l wrote: post #146
api wrote: post #117

Earlier quoted context omitted.

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…

Yes, I think incentives matter.

A similar perverse incentive exists in the VC funding world that was parodied in HBO's Silicon Valley series-- namely an incentive against booking revenue early in the game. When you are "pre-revenue" then the mind can go wild with speculation, but as soon as you book revenue those become hard numbers and if they're unimpressive it turns people off. It's incredibly irrational of course, but investors are not on average more rational than other people.

In the ICO world an analog of this is that ICO projects that do ship inevitably suffer from hype deflation since the very first version of anything is never up to the hype that was used to sell it. So there's a dis-incentive to ship. Shipping means contact with reality, so failure to ship leads projects to wander off into scope-creep lala-land and never deliver anything.

I also think the large sums raised could cause pathologies that lead to project failure like ballooning scope, excessive hubris, over-hiring, or factional conflicts among founders. Too much money can defocus a project and too many new hires can actually reduce productivity.

Some ICOs are clearly frauds, but the rest I think are victims of these and other perverse incentives in the system.

Starting companies is hard. Rational investing is hard. Rationally investing in new companies is hard^2.

Re: SEC tightens the noose on ICO-funded startups

#153

Post by bilbo0s »

jimmaswell wrote: post #150
icostoss wrote: post #124

Earlier quoted context omitted.

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 do…

>I don't find it morally acceptable...

HN User icostoss is right though. What you find morally acceptable, has no bearing on RICO statutes. RICO only requires that you knew, or should have known, what an ICO was used for. Which would probably be borne out by your electronic communications trail. It's pretty much open and shut.

But it would never get that far unless an engineer worked for an ICO that took in a lot of money, AND that engineer was dumb and decided not to try and settle with the SEC.

Hopefully, no one is that dumb.

(I suppose there is a chance that the SEC just wants to make an example of your company, so they'd refer you anyway despite your attempts at a settlement. But that would just be bad luck. Like being the guy who gets pulled over on the interstate for speeding. Sure, everyone else is doing it, but the cop is just trying to make a point.)

Re: SEC tightens the noose on ICO-funded startups

#154

Post by 147 »

bilbo0s wrote: post #153
jimmaswell wrote: post #150

Earlier quoted context omitted.

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 do…

> I don't find it morally acceptable... HN User icostoss is right though. What you find morally acceptable, has no bearing on RICO statutes. RICO only requires that you knew, or should have known , what an ICO was used for. Which would probably be borne out by your electronic communications trail. It's pretty much open and shut. But it would never get that far unless an engineer worked for an ICO that took in a lot o…

Not sure why my comment was flagged but thanks for this discussion. Helped me dodge a bullet.

Re: SEC tightens the noose on ICO-funded startups

#155

Post by FabHK »

pitaj wrote: post #151
awad wrote: post #131

Earlier quoted context omitted.

On balance, it's everyone's right to be stupid and burn their money to the ground. But realistically, in the interconnected world we live in, that will often involve burning other people as well and that's not something that should be OK. The housing crisis had greedy unchecked bankers, but it also had greedy unsophisticated (in a financial sense) individuals over-leveraging themselves and we all paid the price as ta…

The "greedy unchecked banker" narrative is cute, but it completely absolves the distortive effects government policies had on the market before the crash. This included incentivizing subprime loans, Fanny Mae and Freddy Mac, and previously bailing out banks (a signal that your risk will be subsidized in the future). There is no rule that the State must step in during bad situations, in fact many would argue that the…

No.

The government needs to step in to prevent a total collapse. When the government refused to step in to rescue Lehman Brothers (precisely because of the moral hazard problem you allude to), all hell broke loose.

Since the expectation (correctly) is that government will step in, we need regulation (before a crash) that limits risk taking, for example capital requirements (=equity) for banks.

Your narrative has been, in my opinion, comprehensibly refuted by, for example, Anat Admati & Martin Hellwig in *The Bankers' New Clothes" [1], or Krugman already in 2008 [2]. An overview over the debate is given in [3], including this quote from Krugman:

> “for any public figure to go with the Congress-did-it argument at this stage is for him to reveal both that he is grossly ignorant about the central policy issue of the day and that he gets his ‘analysis’ from right-wing flacks.”

This is not to say that government policy has been perfect; but taking the government out of the equation is not going to fix anything.

[1] http://bankersnewclothes.com [2] https://www.nytimes.com/2008/07/14/opinion/14krugman.html?_r... [3] https://www.outsidethebeltway.com/bloomberg-dont-blame-banks...

Re: SEC tightens the noose on ICO-funded startups

#156

Post by s73v3r_ »

CryptoPunk wrote: post #110
s73v3r_ wrote: post #104

Earlier quoted context omitted.

"Well the 13th amendment does deny you a right to sell yourself into slavery, so you're not substantiating your claim that these laws don't infringe on your right to privacy and free contract." I'm saying your complaint is like that. Yes, it does prevent you from doing that. Nobody cares, however. Just like you are trying to complain that you are prevented from buying a security where you get absolutely no insight, k…

You wrote: >>No, they don't. Now you admit that they do. So you're resorting to misleading rhetoric to try to blunt the common sense argument I'm making, which is that in a free society, no one has a moral right to tell someone else how they can spend their money. People should have more humility, and not assume their understanding of the world is so far superior to the common man's that they have a right to exert th…

You're not making a common sense argument. Your argument is literally that you're upset that you cannot buy into investments which give you absolutely no insight, information, or any kind of knowledge that would let you actually be able to make an informed decision. That is not common sense one bit, and is just as silly as complaining that you can't sell yourself into slavery. Nobody is going to take an argument like yours seriously.

Re: SEC tightens the noose on ICO-funded startups

#157

Post by wpietri »

CryptoPunk wrote: post #149
wpietri wrote: post #148

Earlier quoted context omitted.

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.

Did this general point have some relevance to the discussion? If not, I would like to take this opportunity to point out that water is generally wet, and that food can fundamentally taste good.

Re: SEC tightens the noose on ICO-funded startups

#158

Post by CryptoPunk »

wpietri wrote: post #157
CryptoPunk wrote: post #149

Earlier quoted context omitted.

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.

Did this general point have some relevance to the discussion? If not, I would like to take this opportunity to point out that water is generally wet, and that food can fundamentally taste good.

It's directly relevant to your point that technology has a honeymoon period of being exempt from the rules before the rules adapt to reimpose the previously in place controls. I was saying that's not the universal progression.

Re: SEC tightens the noose on ICO-funded startups

#159

Post by CryptoPunk »

s73v3r_ wrote: post #156
CryptoPunk wrote: post #110

Earlier quoted context omitted.

You wrote: >>No, they don't. Now you admit that they do. So you're resorting to misleading rhetoric to try to blunt the common sense argument I'm making, which is that in a free society, no one has a moral right to tell someone else how they can spend their money. People should have more humility, and not assume their understanding of the world is so far superior to the common man's that they have a right to exert th…

You're not making a common sense argument. Your argument is literally that you're upset that you cannot buy into investments which give you absolutely no insight, information, or any kind of knowledge that would let you actually be able to make an informed decision. That is not common sense one bit, and is just as silly as complaining that you can't sell yourself into slavery. Nobody is going to take an argument like…

It's common sense that a free society shouldn't restrict what someone can invest in. You have no idea what insights I have in a potential investment so please do not presume to know. I do not need or want the government to prohibit me from making an investment before it has had a chance to vet it.

What you're advocating is illiberal and paternalistic, and your presumptions about the level of insight that goes into investment made into unregistered offerings are crude and baseless over-simplifications.

>>Nobody is going to take an argument like yours seriously.

That's not true and I don't believe you think it's true. You're literally comparing investing in a speculative instrument not vetted by a government agency with selling yourself into slavery to try to dull the appeal of my argument.

If you thought no one would agree with me, you wouldn't be going to such extreme lengths to counter my claims. You would be comfortable letting them stand on their own merit.

Re: SEC tightens the noose on ICO-funded startups

#160

Post by jimmaswell »

bilbo0s wrote: post #153
jimmaswell wrote: post #150

Earlier quoted context omitted.

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 do…

> I don't find it morally acceptable... HN User icostoss is right though. What you find morally acceptable, has no bearing on RICO statutes. RICO only requires that you knew, or should have known , what an ICO was used for. Which would probably be borne out by your electronic communications trail. It's pretty much open and shut. But it would never get that far unless an engineer worked for an ICO that took in a lot o…

So what am I supposed to do as somebody who works for an employer? Consult a lawyer with every ticket I get?
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