SEC forces ICOs to comply with Regulation A+

The US Securities and Exchange Commission (SEC) has issued numerous subpoenas against ICOs seeking violations of securities laws. Meanwhile, some companies have applied for ICO permits under Regulation A+.

Subpoenas are usually issued to collect evidence with the intention of taking the case to trial if an offense is established. The SEC's position on this issue was voiced by its Chairman Jay Clayton at a recent Senate meeting regarding cryptocurrency, where he stated that the SEC's Division of Enforcement "will continue to review these markets and use enforcement actions against those who conduct ICOs in violation of federal securities laws."

As American investors are assured, it is now almost impossible to find an ICO that will accept their contributions. The days when anyone, anywhere could exchange Ether coins for the best new tokens of the coolest ICO are long gone. ICOs in the US want freedom in their home country without fear of being shut down if the SEC decides that their token is actually a security. Companies that have studiously refused to accept funds from American investors need not fear, as there is a solution to this problem, albeit not a perfect one. 

Instead of hiding from the SEC, some companies have decided to apply to the SEC themselves to obtain its permission based on Regulation A+. 

The sale of securities in the United States is governed by three Provisions of the Securities Law - S, D, A +. Applications for marketing authorizations must be made in accordance with one of these provisions. Regulation S applies only to securities offered for sale outside the United States, and Regulations D and A+ apply to govern sales in the United States.

However, Regulation A+ has its drawbacks. Firstly, issuers' 12-month profits cannot exceed US$50 million, but at least investors do not need to be accredited. Regulation D allows the issuer to avoid registration with the SEC, but investors must be accredited and cannot sell their interest for 12 months after that. According to attorneys at Pepper Hamilton LLP: “Since the beginning of 2018, four companies have filed with the SEC under Regulation A+ to raise funding and publicly sell tokens.”

The cost of obtaining regulatory approval for an ICO is quite expensive.. But given the costs of canceling the ICO, returning contributions to investors, and legal counsel's fees due to SEC prosecution, ICOs have no choice but to adhere to the appropriate regulation.