The SEC has recently signaled an increased concern with the offerings and marketing of Initial Coin Offerings (“ICOs”), which should be of interest to companies and institutions involved with ICOs.
On November 1, 2017, the SEC Division of Enforcement and Office of Compliance Inspections and Examinations (“OCIE”) jointly issued a public statement warning celebrities and other influencers promoting Initial Coin Offerings (“ICOs”) about potential violations of a host of federal securities laws, including the anti-touting and anti-fraud provisions of the federal securities laws. Specifically, the public statement noted that endorsements may be unlawful if they do not “disclose the nature, source, and amount of any compensation paid, directly or indirectly . . . in exchange for the endorsement.,” and that endorsers may also face liability for potential violations of the anti-fraud provisions, for participation in an unregistered securities offering, and for acting as unregistered brokers. The public statement also noted that investment decisions should not be based solely on an endorsement and cautioned that “celebrity endorsement may appear unbiased, but instead be part of a paid promotion.” The public statement follows an investigative report issued by the Division of Enforcement on July 25, 2017, which announced that blockchain technology-based coins or tokens sold in an ICO may be a form of security under the Securities Act of 1933 and the Securities Exchange Act of 1934.
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