Think the SEC is unbeatable? Think again. A California judge just ruled in favor of an ICO over the regulatory body.
In 2018, the Securities and Exchange Commission pummeled countless ICOs with fraud and other charges. Many chose not to fight back; they forked over huge fines and bound themselves to professional promises.
But BlockVest — “a Decentralized Blockchain Based Assets Exchange as well as a cryptocurrency index fund that autonomously tracks the top 30 cryptocurrencies” — took on the SEC. More promisingly, the crypto startup won.
The news is spectacular for ICOs. So let’s take a closer look at the ruling.
SEC Loses to ICO in Court: How and Why?
The Element of Risk
According to the BlockVest ruling, for an offering to fall under the financial “securities” umbrella, investors must pledge “assets to the enterprise.” Practically speaking, this means that “pre-functional” tokens may not inherently conform to the securities’ framework. Moreover, for something to qualify, the investor must “risk…financial loss.” It follows that airdrops don’t inherently fit the mold because free tokens negate the financial risk element.
Court: “Offers” Don’t Naturally Violate Securities’ Law
In its filing, the SEC claimed that the mere ICO “offer” violated securities law. But the court rejected the argument, insisting that the SEC must first prove that a given offering is a security in and of itself.
The SEC’s Burden of Proof
The intersection joining legal definitions and technical process was another point of concern. Specifically, the court considered the issue of “reliance on economic inducement.” According to Marco Santorini, “there was a tough factual dispute over just what the investors saw before they clicked ‘buy.’”
SEC Loses to ICO in Court: The Implications
This is a huge loss for the Securities and Exchange Commission. Till now, common knowledge held that beating the SEC qualified as a “Herculean task.” This win, however, opens up myriad defense opportunities for ICOs under investigation.
Are you An ICO Under Investigation?
Is the Securities and Exchange Commission beating down your door? Our team of finance and cryptocurrency lawyers is here to handle everything. We will assiduously fight on your behalf and leverage every regulation and contact to ensure you land the best possible outcome.
Our experience in the sector will serve you well.
But the best way to determine if we’re the right fit is to get in touch. We’ll chat about your situation and determine, together, if we’re the team you need. If not, we may know one that’s a better fit.
Get in touch today to begin the conversation. Gordon Law Group can answer all your ICO law questions.