In July 2017, the U.S. Securities and Exchange Commission (“SEC”) published the “DAO Report” which concluded that certain tokens issued in an initial coin offering (“ICO”) were securities under the Supreme Court decision SEC v. W.J. Howey Co.  The Report stated that whether an ICO is a security offering will depend on the facts and circumstances, including the economic realities of the transaction.  

A year later some litigation is resolving:

• For Maksim Zaslavskiy in New York, in a motion to dismiss, he asserted that: (1) the cryptocurrencies at issue are exempt from securities laws just as fiat currency is exempt; (2) the tokens did not satisfy the Howey test and so were not securities; and (3) the securities fraud charges, as applied to cryptocurrencies, are void for unconstitutional vagueness.
• In another New York federal court is the private securities case Balestra v. ATBCoin LLC et al.; the plaintiff sued ATBCoin for allegedly engaging in an ICO that was an unregistered sale of securities because the coins were securities under Howey but did not comply with securities laws.
• Finally, pending in federal court in Florida is the private securities case Rensel v. Centra Tech, Inc. et al.  The complaint alleges that Centra Tech engaged in an unlawful sale of securities through an ICO.  A magistrate judge recently ruled that the coins were securities under Howey.

 Contributed by Magdalena A K Muir

Sources:

One Year after the “DAO Report” Three U.S. Courts Begin to Provide Crypto-Clarity; https://www.fintechlawblog.com/2018/07/one-year-after-the-dao-report-three-u-s-courts-begin-to-provide-crypto-clarity/?utm_source=FinTech+Law+Watch&utm_campaign=14964120ea-FinTech_Law_Watch_daily_email&utm_medium=email&utm_term=0_2333af34b6-14964120ea-138169503

DAO Report; https://www.sec.gov/litigation/investreport/34-81207.pdf

USA v. Maksim Zaslavsky, Defendant’s Motion to Dismiss Indictment for Subject Matter Jurisdiction and Vagueness; https://cdn.crowdfundinsider.com/wp-content/uploads/2018/02/THE-UNITED-STATES-OF-AMERICA-v-MAKSIM-ZASLAVSKIY-Motion-to-Dismiss.pdf

Rensel v. Centra Tech, Inc. et al.  Class Action Complaint; http://securities.stanford.edu/filings-documents/1064/CTI00_03/20171213_f01c_17CV24500.pdf