Topic: Which crypto-coins are "investment securities"? Implications? - page 4. (Read 6079 times)

You are, I think, attempting to thread a needle here where the "developer" is an employee or contractor for another entity where the other entry has all the control. The could certainly happen in some cases, but remember economic reality has a lot of weight, and can trump organization paperwork.

It is labeled as opinion and I wouldn't portray it otherwise. It is based on having digested reasonably credible analysis though. I don't feel like digging up actual links. You have a lot more patience for that than I do.

Thus, it can certainly be reasonably disregarded for failure to provide supporting background material. However, if something about what I wrote seems totally unsupported (as opposed to being one of several differing views), you're probably missing something.

The case law says that as long as the user has managerial control then whether you sold a product enabling the user to take control, then as long as the developer has had no control, then the user entirely culpable thus the shares in the product that was sold at ICO are not a security, because there is nothing backing it. It appears you are wrong in the case that the developer steers far from any managerial control throughout the entire process. The devs could be liable for selling a faulty product if they didn't put proper disclaimers in the terms of sale, but that is orthogonal to the tokens of the product being classified as a security. Afaics, Ethereum did assert managerial control. Also perhaps one can argue that Monero's devs appear to assert managerial control (the 6 month forced upgrade thing is one potential sign of that control as who would diffuse that every 6 months if not the ongoing devs exerting managerial control, as the n00b users are totally dependent). It appears that whether the users think it is an investment or not, has nothing to do with the classification as a security. That is why I wrote in the OP to not try to apply your common sense opinion, because the law is not based on your common sense opinion.

smooth your opinion is appreciated, but I would like to point it seems to be entirely based on opinion; whereas, I cited the law (in the USA and in the EU).

In law, opinions are like ass-holes, everyone has them, but the law is something written down and appended to by case law court decisions as you know.

You claim the laws are not clear, but that appears not to be the case. The laws especially in the USA seem to use the test of managerial control. Did you even study the links and sources I provided?

http://www.lextechnologiae.com/2011/06/26/why-bitcoin-isnt-a-security-under-federal-securities-law/

Too many options in the poll. I can't even figure out how to vote.

My opinion is that no one really knows since these laws are incredibly unclear, basically written to give maximum power and abusable discretion to regulators and prosecutors. ICOs seem like the most obvious and highest risk (the securities law issues arise before the coin launches at all). Trying to call it a crowdfunded product seems quite weak when there is obvious intent and expectations by nearly all participants to treat it as an investment (i.e. economic reality trumps fine print). I'm looking at you Ethereum.

Other cases become less clear. Plausible arguments could be made either way.

If you want zero risk, don't play. I'm pretty sure that is somewhat by design. The investments industry doesn't like disruption or competition from technological change, upstarts or scrappy independents.

In general I don't think stepping aside helps much. Whatever you did before you stepped aside is probably enough for culpability if money changed hands.

Andreas Antonopoulos makes the point that what distinguishes decentralized crypto-currency from other forms of money, including digital money, is that it is a decentralized protocol, i.e. a language and not centralized platform (API) nor institution. Since I agree 100% with this definition and especially how he explains it in the context of the history of money, it appears to coincide with my view that the securities law applies to managed platforms and institutions and not to decentralized, unmanaged protocols. Thus if some group is controlling the protocol, I think they could be argued to be the managers of the "investment securities" which are the coins.

Thus I agree with the voter who voted that all crypto-currencies which have a group managing the protocol are thus "investment securities", regardless whether they sold the coins or not.

I highly recommend listening to that presentation by Andreas. When he states "peer-to-peer" and "state moved to the ends i.e. the peers" he is referring to the End-to-End principle:


P.S. I inadvertently locked the poll but I unlocked it now. I didn't know I had clicked Lock poll. I also reset the poll (3 votes lost), because before some voted misunderstanding what the question stated.

It concerns me that so far the only two voters have voted to characterize as "investment securities" a decentrally fairly-distributed coin, where no tokens were ever sold by the creator of the coin, and the creator (or his descendant group) has no ongoing managerial control over product (or company or scheme) invested in.

Also per the terms of the poll, unless the voters posted in the thread to explain why not, their votes means all items below their selected choice are also "investment securities", thus these two aforementioned votes are essentially saying that all crypto-coins including Bitcoin are unregistered "investment securities". Do they realize that would mean many exchanges and other exchanging of these securities are illegal? (at least the risk thereof in some jurisdictions)

My purpose with this thread is to try to gain insight into how users and investors are thinking about this risk. It appears to me thus far that no one has cared nor thought about it. Which is amazing to me given the potential harm that could come to all of us for not being astute on this issue.

But the securities law definitions seem to require that the group has managerial control in order to classify the shares of the investment to be "investment securities".

But if you bought tokens in a game, you wouldn't be taking the pronouncements of the users of the game as promises for the future value of your tokens. The users are not in control of the management of the product (its protocol, compiled code, marketing, planning/implementing hard forks, etc). Crypto-coins are like a virtual game and the value is what the users say it is, so isn't a currency unless the users treat it as such.

Thus as I read the way the "investment securities" are typically defined by the courts and law (at least what I could find quickly), it appears the test is whether there is a controlling group MANAGING the product that drives the value of the investment shares.

The users are not managing the coin. They often disagree with each other and have no consistent managerial organization. They are just using it within the confines of the protocol.

Only the developers truly have the influence to alter the protocol and have it widely adopted. So in my mind the test is whether the developers are acting like an organized controlling manager of the coin. A lead developer could be offering updated code for improvements to the coin and still not really be in control, if others are also doing so more or less uncontrolled by that lead developer and the nodes in the system are not dictated to or controlled by one managerial group as to which code they choose to run on their node. But if these developers have joined together in a coordinated group that is managing the coin and the users depending on the pronouncements and website of this controlling group for the official coin gospel, then I say it falls dangerously close to being classified as an "investment security" and especially if coins were sold to investors with the proceeds going to that managing, controlling group, and even more especially if there is ongoing revenue stream being taken from the coin and given to that managing, controlling group.

The stated reason that securities regulation exists is essentially to protect naive investors from incomplete, incorrect, and fraudulent disclosure by the managers of the investment. Thus if there are no managers, then there is nothing to protect the users from. How could the government regulate a protocol that no one is control of? Instead they can only regulate those who manage investments and those who facilitate exchanging shares in them.

Bitshares and Dash appear to me to be trying to escape the concept of "control" by passing the control off to masternodes and delegates, but in essence if you own most of the coins (or have influence over or confluence with those who do, because of your ability to control which developments get adopted), then you control these masternodes and delegates. So this appears to maybe be an obfuscation of their controlling and managerial role. They appear to be trying to sidestep the securities law, but I think they may fail. They are also US citizens, so I would not want to be doing what they are doing (I am also a US citizen).

Btw, I thought Monero was probably very safely distant from this problem until you told me they automatically manage the changing of the protocol every 6 months. That is a managerial role by a consistent controlling group. That would concern me if I were them. But I am very paranoid, maybe too much so.

Feel free to change your vote if I have changed your opinion with my post.

Edit: my opinion is that if there are funds supplied to develop a product and the managerial control is given up after delivering the product, then the product (and its tokens) are not "investment securities". So in my interpretation, a crowdfunded development of a coin that is then turned over to the community to run autonomously without ongoing managerial control of the developer or any controlling group, would thus not cause its coins to be "investment securities". But I am not attorney so consult your own legal advisor and I want to read what others think.

Isn´t everything effectively controlled by a group? At least by the users, even if there is no "leadership" or "company" behind it or "miners" controlling it.

I am wondering why I can't get any feedback on this?

It is as if everyone wants to sweep this under the rug and pretend this issue doesn't exist  

My theory is the powers-that-be are allowing all this illegal activity to proliferate so that when they are ready in the future to collapse the crypto economy into a fully regulated one, they can bring securities law actions against various parties and their involvement in selling, brokering, exchanging, etc unregistered "investment securities".

I would appreciate some rational feedback from level-headed forum participants. Especially those with relevant experience and knowledge.