Some ICO’s may be eligible for “No Action” Relief, Says SEC’s Hinman.

An agency official of the U.S. Security and Exchange Commission said Friday that Startups that conducted initial coin offerings(ICO) some years back may be actually eligible for relief coming from the potential actions of SEC.

There has been cases filed by regulators against projects that raised money by selling tokens without registering them as securities, it has been on for the last one and half year. Meanwhile, in his opening remarks at the agency’s FinTech Forum held in Washington D.C., William Hinman the SEC Director of Corporation Finance said that cryptocurrencies are capable of shifting from being a potential security to very clearly not being one actually.

According to Hinman, “Digital assets may evolve into an instrument which no longer needs to be regulated as such,”
A similar point was made before by him during his speech in 2018. According to him, he implied that ethereum may have resembled a security during an ICO at its launch, but then by last year, it has much decentralized that it had evolved from being a security.”

Though Ethereum was not referenced on Friday by Hinman but he did use other examples to express his point.
Earlier this year, TurnKey Jets secured a no-action letter as it reassures the firm that the SEC staff would not recommend taking enforcement action against it, this is another one of such example.

Hinman spoke further that when the letter was issued, the company’s token, network and use case were all slightly matured, this means the network was fully developed and with a functional use case token.

The SEC may have been willing to provide no-action relief even though some aspects of the projects were not developed fully.
It would not be outside the level of a possible no-action letter, if the token needed more relief on the secondary market, he said.

Giving example one step further, Hinman posed a hypothetical: looking at a startup with TurnKey’s eventual model existing three years earlier, without a functional token or mature network.

According to Hinman thesis,” token would look like a security If the startup sold its token in amounts that did not correspond its use case but resembled funding,”

However, if three years later, that startup went to the SEC and showed that its token demonstrated utility aspects, the SEC may be willing to work with a company if for instance, three years later, that startup goes to SEC and showed that its token demonstrated aspects of utility. Hinman added and as he also said: “We are more likely to work our way through a no-action letter.”

Stephen Palley, an attorney with Anderson Kill who attended the forum also maintained the same view that a token which resembled an investment contract could turn into something that can be called to a utility token.

Moreover, Palley said, it was quite interesting to know that SEC has indicated it is making this kind of determination by using its framework.

During Hinman remarks, he noted that the SEC’s actions have been conducted in accordance with its existing statutes and rules till date.
“This indicates the flexibility of the regulatory framework we are working under,” he also added.

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Credits: Nikhilesh De

 

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