SEC Statement on Securities Law Considerations for Digital Asset Securities: Reiterates That ICO Tokens and Other Digital Asset Securities May Raise Issues Under Not Only the Securities Act But Also the Exchange Act, Investment Company Act and Investment Advisers Act; Notes Remedies of Rescission Rights and Forced Public Company Reporting

Sullivan & Cromwell LLP - November 27, 2018
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On November 16, 2018, the Divisions of Corporation Finance, Investment Management, and Trading and Markets of the Securities and Exchange Commission published a statement reviewing many of the SEC’s recent enforcement actions, statements and other guidance regarding the issuance of and trading and investment in digital asset securities. The Divisions emphasized that while technological innovations that benefit investors are encouraged, market participants must still adhere to federal securities laws, regardless of whether the securities at issue are issued in certificated form or using new technologies. Among other topics, the Statement outlined a “path to compliance” for tokens that were issued in unlawfully unregistered initial coin offerings (“ICOs”), including notifying investors of potential rescission rights and promptly complying with public-company reporting requirements. The Statement also reiterates that digital asset securities, and businesses involving them, may raise concerns under U.S. investment company and investment adviser laws, and considers the circumstances under which platforms or firms offering the ability to trade digital asset securities in the secondary market may implicate securities exchange or broker-dealer registration requirements. The Divisions specifically encouraged “those employing new technologies [to] consult with legal counsel concerning the application of the federal securities laws and contact [SEC] staff, as necessary, for assistance.”