SEC ruling part 2: The bigger picture

| by Bradley Cooper
SEC ruling part 2: The bigger picture

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In last week's feature, several attorneys offered their perspectives on the SEC ruling on a token sale by The DAO. The DAO did not consider its tokens to be securities and did not believe that its offshore token sale was subject to securities laws; the SEC thought otherwise.

The ruling raises a number of larger questions about the future of blockchain regulation and whether the rules regarding the sale of tokens should be clarified.

Blockchain Tech News spoke with Joshua Ashley Klayman, Daniel Kahan and Alfredo Silva, attorneys at the international law firm of Morrison & Foerster, to get their views on these questions.

BTN: What do you see as the future of regulation for businesses involved in the blockchain?

Klayman, Kahan and Silva: Given the global and decentralized nature of blockchain technology, we expect to see increasingly more coordination among various jurisdictions, and with the recent announcement from the Monetary Authority of Singapore regarding token offerings, we already are starting to see it. 

The innovations of blockchain technology are disruptive not just to the market and mature industries, but also to existing legal frameworks. Some nations (including the United Kingdom, Australia and Singapore) have developed "regulatory sandboxes" to address emerging questions and technologies in a cohesive and holistic manner.

We expect these types of innovative approaches to grow in popularity as regulators consider how to address blockchain technology.

In the context of securities laws, the SEC has not yet addressed other important questions. For example, the SEC declined to express its view as to whether The DAO was an investment company. 

Many market participants are also anxious to learn if the SEC has a view on which types of tokens might not be securities.  For that reason, we anticipate that we may receive additional SEC guidance relatively soon, especially if retail investors suffer significant widespread harm or the SEC initiates additional enforcement actions.

BTN: Do we need clearer regulation?

Klayman, Kahan and Silva: Yes. With its enforcement action against The DAO, the SEC has now provided a clear example of a token that is a security. The next step would be to tell us when, in its judgment, a token should not be considered a security.

Without guidance of the counter-case (such as rule-making or no-action letters), it may be difficult for responsible issuers and their counsel to be comfortable taking the position that a token is not a security, and issuers may choose to take a more conservative approach, such as assuming that their tokens are securities, irrespective of the tokens' characteristics.  This approach, while safe, may be burdensome financially and administratively. 

While the SEC likely won't come out and say directly that a given token is not a security, it can indirectly but clearly indicate its feelings on the matter through a no-action letter.

That process could be invoked by a token issuer proposing to issue a token, describing the rights of the token and the offering process to the SEC in detail, and requesting that the SEC respond in public to express its view that, based on the facts and circumstances described, the SEC would recommend that the enforcement division take "no action" against the issuer.

While that process might not be appropriate for all issuers, we would not be surprised to see at least some issuers avail themselves of this opportunity in the near future.

Topics: Blockchain, Cryptocurrency, Regulation, Taxes

Bradley Cooper

Bradley Cooper is a Technology Editor for and His background is in information technology, advertising, and writing.

wwwView Bradley Cooper's profile on LinkedIn

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