Regulators focusing attention on token sales using digital currencies

An investigation report released last week by the Securities and Exchange Commission strongly signals that the SEC views Initial Coin Offerings (ICOs), “token sales” and other blockchain-enabled means for capital raising as subject to U.S. securities laws.

The report examines whether the sale of tokens by the so-called Distributed Autonomous Organization, or DAO, violated U.S. securities law. The report concludes that the DAO tokens were securities for the purpose of U.S. securities law but stopped short of making findings of violations. Nonetheless, the report and accompanying material expressly advise anyone involved in an ICO or other token sale to consider, among other issues, whether the offer or sale of a token needs to be registered or is subject to an available exemption.

In the wake of the report, Canadian securities administrators can be expected to emphasize the need for ICOs and other token sales to comply with applicable Canadian securities laws. The potential application of securities (and other) laws from multiple jurisdictions heightens the need for those involved in ICOs and token sales to manage the risks of these promising innovations.

For more, read our recent Osler Update.