Topic: ICO Coins are Securities? Are Baseball Cards Securities? (Read 723 times)
But, one more difference is how easy it is to sell your ICO coin vs how easy to sell baseball card. Anyone can say hey my baseball card is worth $1000 but you cannot find one buyer immediately. Maybe you can find 10 to buy it for $100. Your ICO coin is always almost worth something which you can sell immediately. Usually something you don't decide:)
I want to caution you about giving out incorrect legal advice to readers on this forum. You should be more circumspect with your statements.
The SEC disagrees with you. But perhaps you should reach out to them and help them understand this topic more clearly.
Incorrect. The SEC does not disagree with me.
Where the SEC wrote that some ICOs may be securities (implying that some others may not be), they do not mean that “use value” ICOs (aka “utility tokens”) are exempt. What the SEC means is that any ICO that contains the 3 aspects of the Howey Test is a security:
I agree with this. Unfortunately, it seems based on various comments and threads in this forum that many investors simply are ignorant of that fact.
That's the genius of an ICO. If a company follows the traditional IPO method of raising funds, they issue stocks and the investors actually own a piece of the company. Buy enough stocks and you can even influence the direction of a company. Management is obligated to the stockholders to a certain extent. In the case of an ICO you're basically giving the buyer nothing of value for their money. You retain 100 percent ownership of your company and owe the investor nothing. You don't even have to pay them back like if you borrowed the money by traditional methods.
This principle is what makes ICOs such a scammy way of raising funds.
Actually that is another reason that securities are regulated. To be sure that there is legally binding disclosures on the use the funds. This is in the anti-fraud provisions of the Securities Act.
This notion that investors of ICOs are not shareholders in an enterprise is not true if the decentralized ledger is an enterprise because the reasonable expectations of the investor are that the developers will develop the ledger code, promote it, and other efforts that the funds are supposed to be used for.
Just because there are no voting rights, doesn’t mean it is not an investment security. There are classes of stocks that are issued without voting rights and they are still securities.
What makes it a security is that there is an expectation of gains (appreciation and/or dividends) that depend on the efforts of the issuer. That makes it a shared enterprise that investors own a part of. Lack of voting rights does not remove all of the ownership aspect. A security is never 100% ownership even with voting rights. The entire point is that the issuer is securing some of the investor’s ownership, because the investor relies on some efforts of the issuer.
The baseball card investor is not invested in some ongoing enterprise. The player is an individual who has a certain talent and his performance is independent of the funds invested.
If I go issue trading cards for famous crypto developers, that does not make them investments in any enterprise. If someone issued an ICO which were trading cards on Ethereum, and all the features were completed at the time of the sale, these would not be securities even though there is an expectation of gain, because there would be no expectations of ongoing efforts of the issuer. I haven’t studied Jesuscoin carefully, so it might be an example of not being a security. But it could still fall under the scope of MLM scheme:
Disclaimer: IANAL. This is not legal advice.
Maybe not, but they are all securities. And thus are regulated. Whether you like it or not.
The SEC disagrees with you. But perhaps you should reach out to them and help them understand this topic more clearly.
Incorrect. The SEC does not disagree with me.
Where the SEC wrote that some ICOs may be securities (implying that some others may not be), they do not mean that “use value” ICOs (aka “utility tokens”) are exempt. What the SEC means is that any ICO that contains the 3 aspects of the Howey Test is a security:
Cryptocurrency is an asset that does not give you a portion of ownership in a company, or a right to collect a portion of an asset or property upon request.
I agree with this. Unfortunately, it seems based on various comments and threads in this forum that many investors simply are ignorant of that fact.
That's the genius of an ICO. If a company follows the traditional IPO method of raising funds, they issue stocks and the investors actually own a piece of the company. Buy enough stocks and you can even influence the direction of a company. Management is obligated to the stockholders to a certain extent. In the case of an ICO you're basically giving the buyer nothing of value for their money. You retain 100 percent ownership of your company and owe the investor nothing. You don't even have to pay them back like if you borrowed the money by traditional methods.
This principle is what makes ICOs such a scammy way of raising funds.
Actually that is another reason that securities are regulated. To be sure that there is legally binding disclosures on the use the funds. This is in the anti-fraud provisions of the Securities Act.
This notion that investors of ICOs are not shareholders in an enterprise is not true if the decentralized ledger is an enterprise because the reasonable expectations of the investor are that the developers will develop the ledger code, promote it, and other efforts that the funds are supposed to be used for.
Yeah your presumptions are sort of true here but not fully truthful. The first thing is ICO, in general their tokens which are distributed through the ICO stage is actually a symbol of shareholder that we get from the distributing company. So yeah we can say that it's not a ownership but at least partial sharing of their profits in later stages of ICO.
Just because there are no voting rights, doesn’t mean it is not an investment security. There are classes of stocks that are issued without voting rights and they are still securities.
What makes it a security is that there is an expectation of gains (appreciation and/or dividends) that depend on the efforts of the issuer. That makes it a shared enterprise that investors own a part of. Lack of voting rights does not remove all of the ownership aspect. A security is never 100% ownership even with voting rights. The entire point is that the issuer is securing some of the investor’s ownership, because the investor relies on some efforts of the issuer.
Holding a baseball card and waiting for the player to make the hits is kinda similar thing here.
The baseball card investor is not invested in some ongoing enterprise. The player is an individual who has a certain talent and his performance is independent of the funds invested.
If I go issue trading cards for famous crypto developers, that does not make them investments in any enterprise. If someone issued an ICO which were trading cards on Ethereum, and all the features were completed at the time of the sale, these would not be securities even though there is an expectation of gain, because there would be no expectations of ongoing efforts of the issuer. I haven’t studied Jesuscoin carefully, so it might be an example of not being a security. But it could still fall under the scope of MLM scheme:
Finally, there is the possibility that securities regulation will wind up being mostly irrelevant and we’re all barking up the wrong tree. Because coins aren’t actually traditional securities and (usually) confer no legal rights in anything (with some recent token purchase contracts being so vague and issuer-friendly as to border on being illusory or unconscionable from the perspective of the purchaser), there is also a non-zero risk that coin offerings will be classed as MLMs of some kind that are
When the current bubble collapses (and it will), this last point might become more relevant, particularly if n00b bagholders grab their pitchforks and start asking Uncle Sam to get involved so help them get their money back. Which, if these are investment contracts, is a request aforementioned bagholders will be perfectly entitled to make.
If this happens, although the SEC will stay in the loop, the really exciting action will be in the domain of the tort lawyers and federal and state prosecutors working in tandem with the FTC. See, e.g., the recent case of Josh Garza and GAW Miners (which involved fraudulent misrepresentations relating in part to a cryptocurrency called Paycoin). Although in the civil enforcement action the SEC got a $12 million default judgment, the U.S. Attorney got a guilty plea for one good, old-fashioned count of wire fraud. No Securities Act required.
Note that if this interpretation is adopted, some state laws cast a much wider net to penalize participants than Section 5 of the Securities Act of 1933 does.
Quote
“organized and operated in such a manner that the realization of profit by any participant is predicated upon the exploitation of others who have virtually no chance of receiving a return on their investment and who had been induced to participate by misrepresentations as to potential earnings.”
When the current bubble collapses (and it will), this last point might become more relevant, particularly if n00b bagholders grab their pitchforks and start asking Uncle Sam to get involved so help them get their money back. Which, if these are investment contracts, is a request aforementioned bagholders will be perfectly entitled to make.
If this happens, although the SEC will stay in the loop, the really exciting action will be in the domain of the tort lawyers and federal and state prosecutors working in tandem with the FTC. See, e.g., the recent case of Josh Garza and GAW Miners (which involved fraudulent misrepresentations relating in part to a cryptocurrency called Paycoin). Although in the civil enforcement action the SEC got a $12 million default judgment, the U.S. Attorney got a guilty plea for one good, old-fashioned count of wire fraud. No Securities Act required.
Note that if this interpretation is adopted, some state laws cast a much wider net to penalize participants than Section 5 of the Securities Act of 1933 does.
Disclaimer: IANAL. This is not legal advice.
Cryptocurrency is an asset that does not give you a portion of ownership in a company, or a right to collect a portion of an asset or property upon request.
I agree with this. Unfortunately, it seems based on various comments and threads in this forum that many investors simply are ignorant of that fact.
That's the genius of an ICO. If a company follows the traditional IPO method of raising funds, they issue stocks and the investors actually own a piece of the company. Buy enough stocks and you can even influence the direction of a company. Management is obligated to the stockholders to a certain extent. In the case of an ICO you're basically giving the buyer nothing of value for their money. You retain 100 percent ownership of your company and owe the investor nothing. You don't even have to pay them back like if you borrowed the money by traditional methods.
This principle is what makes ICOs such a scammy way of raising funds.
There are some other coins that are doing the same most of them being casinos, to be honest I like this approach a lot more, in most of the other coins you give away your money and then the only thing you can do is to wait for your tokens to go up, but if you get a share of the profits then that token is more similar to a stock.
According to a Coindesk article , most projects do not use their tokens in their applications, as their tokens do not really serve any function: "... many projects are putting on a song and dance, giving investors the impression that the token they are selling is an integral part of a working, or almost working, smart contract. But this is often far from the truth..." "And what buyers do not realize is, in most cases, what they are buying is nothing more than a number on a spreadsheet managed by that token's smart contract."
Gambling or gaming tokens are the rare exceptions.
Gambling and gaming are excellent applications and a natural fit for cryptos. Everyone else is trying to put anything and everything onto a blockchain, including the kitchen sink. It's like trying to squeeze a square into a circle.
Yeah your presumptions are sort of true here but not fully truthful. The first thing is ICO, in general their tokens which are distributed through the ICO stage is actually a symbol of shareholder that we get from the distributing company. So yeah we can say that it's not a ownership but at least partial sharing of their profits in later stages of ICO.
Holding a baseball card and waiting for the player to make the hits is kinda similar thing here. As we know ICO are also in the infancy stages and only few of them have their projects and products launched in the market as real proof. However, it's on the performance of ICO which decides it's fate in the market and so as to value of our token which we later trade. Good concept.
Holding a baseball card and waiting for the player to make the hits is kinda similar thing here. As we know ICO are also in the infancy stages and only few of them have their projects and products launched in the market as real proof. However, it's on the performance of ICO which decides it's fate in the market and so as to value of our token which we later trade. Good concept.
Cryptocurrency is an asset that does not give you a portion of ownership in a company, or a right to collect a portion of an asset or property upon request.
Cryptocurrency is more like a baseball card than a stock, and an ICO is more like buying a rookie card than a deed to a fully constructed house. If you buy a rookie card, you are fully dependent on the baseball player’s activities as to whether your card will rise in value in the future and provide you with the opportunity for profit – and many people buy rookie cards expecting future profits.
DAO was selling shares in what was basically an investment fund and the coin holders were promised profit sharing. That is so much different from most ICOs.
End of story.
https://www.compliancebuilding.com/2010/11/04/what-is-a-security-is-real-estate-a-security/
~Support the Troops!
There are some other coins that are doing the same most of them being casinos, to be honest I like this approach a lot more, in most of the other coins you give away your money and then the only thing you can do is to wait for your tokens to go up, but if you get a share of the profits then that token is more similar to a stock. Cryptocurrency is more like a baseball card than a stock, and an ICO is more like buying a rookie card than a deed to a fully constructed house. If you buy a rookie card, you are fully dependent on the baseball player’s activities as to whether your card will rise in value in the future and provide you with the opportunity for profit – and many people buy rookie cards expecting future profits.
DAO was selling shares in what was basically an investment fund and the coin holders were promised profit sharing. That is so much different from most ICOs.
End of story.
https://www.compliancebuilding.com/2010/11/04/what-is-a-security-is-real-estate-a-security/
~Support the Troops!
ICO Coins are Securities? Are Baseball Cards Securities?
A baseball card doesn’t have an ongoing management which you are basing your expectation-of-profit on.
Learn about the Howey Test and why it is required to make sure that scams don’t proliferate and turn society upside down with Tulip Bubble collapse.
If most of the economy turns into fraud and scam (i.e. the scammers and fraudsters wasting all the resources on hookers and cocaine), we all starve to death. Regulators will stop it long before it reaches that level.
With a baseball card, you are basing your expectation of profit on the performance of others (mainly the player), of which you have no control - which is the basis of the Howey Test that you are referencing.
A person selling a royalty for his copyright (i.e. his likeness) is not an investment contract. Besides the baseball player doesn’t receive most for the money that was invested. The baseball player’s ongoing performance is not a business enterprise to which you are invested. You didn’t invest into ownership of his team, the league, etc..
More importantly is that a baseplayer being a public figure is implicitly high in disclosure. The main point of securities law is prevent scams where insufficient disclosure is made or attained by those who get taken advantage of.
Additionally not just anyone can become a baseball player. The supply of players is highly vetted by the league, teams, minor leagues, colleges, and high schools.
I agree. A baseball card is not an investment contract. Neither is an ICO. ICOs are the purchase of an asset that may or may not increase in value as it gets popular, just like a baseball card.
Incorrect.
The point of securities regulation is to insure that scammers can’t sell tulips and claim they will become worth a $million each, creating a Tulip Bubble. We were entering an ICO mania where everyone stopped caring that the projects were worthless and only cared about the fact that everyone was in a mania that can only go up.
The government regulates the level of disclosure on securities issuance and resale, to protect the public from scams.
There is an investment contract when the investor of the ICO has transferred value to the issuers of the ICO and depends on the ongoing efforts of the enterprise of the issuer to fulfill the expectation-of-profits.
Since the public disagrees with you based on the past problems with unregulated securities, they have empowered the government to punish you for doing that which the public-at-large has deemed to be illegal and harmful to society.
The value of a cryto coin is not about the person who created it, it is about the community that adopts it.
In the case of competitive proof-of-work, where there is no transfer of value to a centralized issuer, then you are correct.
Whereas in the case of ICOs, the investor relies on the issuer to fulfil the promises to use the funds raised to make the necessary efforts promised.
If the ICO is issued after the ecosystem is diversified+self-reliant and the ICO issuer will not be promising to do nor doing any efforts ongoing with the funds raised, then my understanding is there is no security (but IANAL). But no ICOs are issued that way.
That is so far removed from stock in a company where the value is much more closely and directly linked the quarterly profits of the company.
Also, a crypto coin gives you no voting rights, and no control over the company, no rights to information, nothing that you get when you buy stock.
Also, a crypto coin gives you no voting rights, and no control over the company, no rights to information, nothing that you get when you buy stock.
Irrelevant to the determination of what is a security. Voting rights and some peculiarities of stocks are not requirements for something to be a security.
Therefore most ICOs are securities - which the SEC agrees with BTW or they would have simply ruled them all "securities" but they did not, neither did Canada, or S. Korea, or Japan. Only China thinks they should be banned. Please, correct me if I'm wrong here, but the SEC doesn't think all ICO coins are securities. Aren't they better suited to make that call?
I don’t have time to unravel all your incorrect misunderstandings. You make some incomprehensible statements which make claims about regulatory bodies which are not factual.
Baseball players receive most of the money when they sell the autographed cards, or their autograph. It's the same concept as the card. It has no value that is within the control of the buyer. People buy it to be part of the experience, but also because they think it will go up in value. I do agree, you didn't invest ownership into the team, the league, or the company when you buy an ICO.
You really need to get an education about securities law. Please go consult with a securities lawyer. I am not paid to debate you. You are highly confused.
The main point of securities laws is to protect people from scams, I agree, but that doesn't mean it applies to all scams,
It only applies to scams which constitute a security. And all ICOs are securities. You can try to twist it around by writing irrelevant gibberish.
And lastly, not all ICOs are scams.
Maybe not, but they are all securities. And thus are regulated. Whether you like it or not.
DAO was selling shares in what was basically an investment fund and the coin holders were promised profit sharing. That is so much different from most ICOs.
Agreed, but that does not mean that other ICOs are not securities.
Security means the issuer is securing the expectation-of-profit, by doing ongoing efforts with the funds that were raised. The investor is depending on the issuer to do necessary efforts with the funds in order for the expectation-of-profit to be achieved.
The main point of securities laws is to protect people from scams, I agree, but that doesn't mean it applies to all scams, even though all scams would cease to exist through full honest disclosure. And lastly, not all ICOs are scams. But if they were, I would agree with China, but I don't.
A few ICOs are scams, but most are not. Most have good intentions, but most are bad ideas or bad executions.
ICO Coins are Securities? Are Baseball Cards Securities?
A baseball card doesn’t have an ongoing management which you are basing your expectation-of-profit on.
Learn about the Howey Test and why it is required to make sure that scams don’t proliferate and turn society upside down with Tulip Bubble collapse.
If most of the economy turns into fraud and scam (i.e. the scammers and fraudsters wasting all the resources on hookers and cocaine), we all starve to death. Regulators will stop it long before it reaches that level.
With a baseball card, you are basing your expectation of profit on the performance of others (mainly the player), of which you have no control - which is the basis of the Howey Test that you are referencing.
A person selling a royalty for his copyright (i.e. his likeness) is not an investment contract. Besides the baseball player doesn’t receive most for the money that was invested. The baseball player’s ongoing performance is not a business enterprise to which you are invested. You didn’t invest into ownership of his team, the league, etc..
More importantly is that a baseplayer being a public figure is implicitly high in disclosure. The main point of securities law is prevent scams where insufficient disclosure is made or attained by those who get taken advantage of.
Additionally not just anyone can become a baseball player. The supply of players is highly vetted by the league, teams, minor leagues, colleges, and high schools.
If you sell baseball cards and tell your buyers that it's an investment and that the value of the cards will go up, then it will likely be deemed a security.
So then based on your definition a house is a security. But a house is not a security. Neither is a baseball card.
You bring up a good point. I wrote too soon in my previous comment.
For it to be a security, it needs to be an investment in a common enterprise. Neither the card nor the house are common enterprises.
ICO Coins are Securities? Are Baseball Cards Securities?
A baseball card doesn’t have an ongoing management which you are basing your expectation-of-profit on.
Learn about the Howey Test and why it is required to make sure that scams don’t proliferate and turn society upside down with Tulip Bubble collapse.
If most of the economy turns into fraud and scam (i.e. the scammers and fraudsters wasting all the resources on hookers and cocaine), we all starve to death. Regulators will stop it long before it reaches that level.
If you sell baseball cards and tell your buyers that it's an investment and that the value of the cards will go up, then it will likely be deemed a security.
Cryptocurrency is an asset that does not give you a portion of ownership in a company, or a right to collect a portion of an asset or property upon request.
Cryptocurrency is more like a baseball card than a stock, and an ICO is more like buying a rookie card than a deed to a fully constructed house. If you buy a rookie card, you are fully dependent on the baseball player’s activities as to whether your card will rise in value in the future and provide you with the opportunity for profit – and many people buy rookie cards expecting future profits.
DAO was selling shares in what was basically an investment fund and the coin holders were promised profit sharing. That is so much different from most ICOs.
End of story.
https://www.compliancebuilding.com/2010/11/04/what-is-a-security-is-real-estate-a-security/
~Support the Troops!
Cryptocurrency is more like a baseball card than a stock, and an ICO is more like buying a rookie card than a deed to a fully constructed house. If you buy a rookie card, you are fully dependent on the baseball player’s activities as to whether your card will rise in value in the future and provide you with the opportunity for profit – and many people buy rookie cards expecting future profits.
DAO was selling shares in what was basically an investment fund and the coin holders were promised profit sharing. That is so much different from most ICOs.
End of story.
https://www.compliancebuilding.com/2010/11/04/what-is-a-security-is-real-estate-a-security/
~Support the Troops!
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