- Kristin Snyder — Associate Regional Director (Examinations) at SEC,
- Zach Fallon — Special Counsel in Office of Small Business Policy at SEC,
- Victor Hong — Senior Counsel in the Division of Enforcement at SEC, and
- Scott Walker — Attorney Advisor in the Office of Compliance Inspections and Examinations and Member of Distributed Ledger Technology Working Group at SEC.
Hong began in discussing the DAO Report’s key takeaways:
- The Commission recognizes that ICOs may provide a fair and lawful way to invest. However, current Federal securities laws may apply to it if the circumstances are appropriate. (This will be determined on a case-by-case analysis).
- Investment contracts and in turn, securities, are determined by the Howey Test factors.
- If the token issued is a security, it must be registered with the SEC (disclosures provided), unless there is a valid exemption.
- If you are issuing a security as a market participant (brokers, dealers, and investment advisors) you may have SEC obligations including registration and compliance.
Further, Fallon dialed in remotely from Washington D.C. and stated that:
“Every offer or sale of securities needs to be registered with the SEC or conducted pursuant to an exemption to registration.”
He went on to discuss the following with regard to exemptions:
- Threshold question: Does the business know accredited investors or sophisticated investors that would like to invest in it? If the answer is yes, you may consider relying on the private placement exemption that is conducted pursuant to section 4(a)(2) of the Securities Act of 1933.
- Reliance on Rule 506(b) offerings and filing a Form D.
- The 2012 JOBS Act laying the groundwork for several new exemptions around crowdfunding, which relate to Rule 506(c) offerings (“Regulation Crowdfunding“) and Regulation A offerings.
- Funding portal investments are subject to filing disclosure documents with the SEC first.
- Financial statements are required and depend on the amount you will be raising (differ from 100K, 500K and 1 million dollars, respectively).
- Annual reports are to be filed under Reg. Crowdfunding.
- Under Reg. A, you are able to test the waters before and after the offering to determine whether there is an interest, then file the Reg A offering. Form 1A is to be filed alongside the offering and includes financial statements (under Tier 2 they must be audited). Further, may not make sales until the SEC qualifies the offering.
- There is a difference between Tier 1 and Tier 2 offerings that must be looked into regarding preempting State laws.
- Additionally, Regulation S sales outside of the United States include two safe harbors: an issuer safe harbor and a resale safe harbor.
For more information please visit the SEC site, or to contact the SEC on FinTech matters please email: firstname.lastname@example.org.