SEC Head Clayton Softens View On ICOs aka New Age Private Placements

April 07, 2018

Perhaps not every member of the Trump cabinet team is a total Muppet. At least that’s one take-away when attempting to wrap one’s arms around comments made by SEC Chairman Jay Clayton while he was speaking to a group at Princeton University last week. By all accounts, SEC Head Clayton has softened his view regarding ICOs (aka Initial Coin Offerings), but he did re-affirm that regulators should embrace the “3 Duck Rule” when evaluating ICO issuers approach to raising funds via what thought leaders from LLC have coined as “New Age Private Placements.”

Excerpts below from Clayton’s visit to Princeton and his views regarding Initial Coin Offering regulations are courtesy of reporting from Fortune Magazine and CoinDesk..

SEC chairman Jay Clayton on Thursday defended the agency’s recent regulatory steps on cryptocurrency, arguing that oversight will strengthen the industry.

During a talk at Princeton University, Clayton also responded “absolutely not” to a question as to whether all ICOs were fraudulent, CoinDesk reports. Clayton went to explain the SEC’s steps to combat fraud will help the cryptocurrency industry develop.

Clayton’s remark came during a talk on “Cryptocurrency and Initial Coin Offerings,” one that was notable given his past statements, including his most famous issued in February, in which he said that he believes “every ICO” he’s seen qualifies as a security. Indeed, Clayton opened the talk by telling the assembled students he believes that “distributed ledger technology has incredible promise for the financial industry.”

The remarks from SEC’s highest-ranking official may signal a softening approach to ICOs, but not without a caveat; Clayton used an analogy to describe the difference between a utility token and a security token…..

“If I have a laundry token for washing my clothes, that’s not a security. But if I have a set of 10 laundry tokens and the laundromats are to be developed and those are offered to me as something I can use for the future and I’m buying them because I can sell them to next year’s incoming class, that’s a security,” he explained.

evan fisher prospectus
Evan Fisher

Finance industry veteran Evan Fisher, a senior Startup Consigliere with investor documentation firm LLC stated, “Our firm’s view when guiding so-called “Crypto Cool Kids” setting out to raise capital via coin or token offerings has always advocated they stay inside ICO regulatory goal posts, regardless of whether those entrepreneurs are determined that what they are selling is something other than a security.” Added Fisher, “The simple question is whether its worth it to die on the sword, or to stay in the game and raise the money properly. This means staying smart when framing narrative that speaks to returns investors might make, the need to document that capital raising initiatives are aimed only at accredited investors and to follow global anti-money laundering rules.”

Clayton’s remarks follow the SEC’s recent charges against the co-founders of Centra Tech. The agency stopped an ICO and charged Sohrab Sharma and Robert Farka with fraud after they raised $32 million by selling “unregistered securities,” CoinDesk reported earlier.

Clayton said that such actions were in the industry’s best interests. “I think if we don’t stop the fraudsters, there is a serious risk [of a] regulatory pendulum — the regulatory actions will be so severe that they will restrict the capacity of this new security,” he reportedly told the audience.

Elsewhere, Clayton discussed the evolving terminology of the industry.

One of the issues with token sales, he remarked, is the attempt to classify them as so-called “utility tokens,” which would ostensibly free them from any kind of designation as a security. As such, he reiterated his view that almost all token sales purport to sell such products, despite the fact that they are actually securities.

If a startup is “offering something that depends on the efforts of others, it should be regulated as a security,” he told the gathering of students on Thursday.


Still, he suggested that such a definition can evolve over time.

SEC Head Clayton Softens View On ICOs aka New Age Private Placements