The author of the article, Jared Marks, an attorney at Harris, Wiltshire & Grannis, who represents the interests of companies and individuals in civil and criminal proceedings, draws attention to the legal nuances of the functioning of ICOs.
With the increasing number of initial coin offerings (ICOs) emerging, much attention has been paid to how the US Securities and Exchange Commission (SEC) and federal prosecutors view this innovation. And this is important because these regulators can fine you and even send you to jail.
Investors and companies should be aware that buyers can sue sellers privately under federal securities laws. Sellers need to be aware of these laws to understand the risks they may face, and buyers need to know that there are remedies available if they are treated unfairly.
A few years ago I wrote an article about whether coins are securities (back when we called ICOs "pre-sale tokens"), and the answer to that question was that it's not that simple. It is important to note that if an ICO is truly an offering of tokens that are backed by something, then federal law requires the seller to register such collateral or state why this cannot be done if the offering falls under an exemption. If the law is not followed, the SEC can enforce the violation or the violator will face criminal charges.
However, not everyone is aware that the Securities Exchange Act of 1933 states that a person who buys unregistered securities can sue the seller himself to get his money back. This is important for a number of reasons.
First, it means that the SEC and the Department of Justice are not the only parties that can claim that an ICO is an initial public offering of securities. Some argue that there are so many ICOs and that the SEC is so overworked that it would never discipline many sellers. But this does not mean that individuals will not sue. And if an individual files such a lawsuit, then it is not the SEC, but a judge, who will decide whether the ICO is an initial offering of securities.
The 1933 law also provides for personal liability for those who control a company that sells an unregistered security... Therefore, normal corporate remedies do not necessarily apply.
The bad news for buyers (and the good news for sellers) is that the time in which an injured party has to file a lawsuit is very limited. The statute of limitations for this particular violation is only one year from the date of sale, and claims beyond that time limit will not be accepted.
Second, the right to sue as an individual is important because the remedy is to void the sale entirely. That is, a company that raised $15 million through its ICO must return every cent back to its customers, even if it has already spent most of that $15 million.
According to https://www.coindesk.com
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