In July 2017, the Securities and Exchange Commission (SEC) issued a report addressing whether a developing investment vehicle -- the Initial Coin Offering (ICO) -- runs afoul of federal securities laws. Silver Miller is investigating the ICOs of several start-up companies, including decentralized blockchain start-ups Tezos, Bancor, Status, TenX, MobileGo, SONM, and Aeternity to determine whether those ICOs properly adhered to federal securities laws and whether members of the investing public were harmed by any unregistered or non-exempt ICOs.
While in traditional Initial Public Offerings (IPOs), a start-up company offers its investors company stock in exchange for investment capital; the ICO companies offer something different to their investors: cryptocurrency such as Bitcoin (BTC), Ether (ETH), and other virtual currencies issued or managed by the start-up company in exchange for the investors’ capital, which itself might be pre-existing cryptocurrency owned by the investors. Much like capital stock, the value of cryptocurrency can rise or fall with the success or failure of the start-up venture.
In its recent report, the SEC warned that depending upon the facts and circumstances of each ICO, the cryptocurrency provided to ICO investors can be deemed a “security” -- the sale of which is subject to federal securities laws, including registering the security with the SEC or obtaining from the SEC an exemption from registration. As the SEC cautioned:
The registration requirements are designed to provide investors with procedural protections and material information necessary to make informed investment decisions. These requirements apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.
Tezos recently concluded the largest ICO in history, raising $230 million worth of Bitcoin and Ether in just 13 days of crowdfunding to launch its new decentralized blockchain. Critics not only question whether Tezos’ business model is viable but also whether Tezos’ fundraising efforts violated the very concerns and investor protections addressed by the SEC in its newly-issued report. Silver Miller is investigating whether Tezos’s ICO -- as well as the ICOs of Bancor, Status, TenX, MobileGo, SONM, and Aeternity -- properly complied with federal securities laws and whether the ICO investors were afforded the “procedural protections and material information” the SEC requires to protect investors and allow them to make informed decisions with their funds.
Silver Miller currently represents the victims in class action lawsuits against multiple cryptocurrency exchanges (Cryptsy; Coinbase; Kraken) and is investigating other exchanges and Money Services Business regulated under the FinCEN division of the U.S. Treasury Department for apparent theft and laundering of customer funds, negligent business practices, and widespread failures to satisfy regulatory requirements and properly safeguard client assets.
If you have entrusted your cryptocurrency to an exchange or have lost money in alternative investments, you might have the grounds upon which to assert a claim to recover your losses. Contact us to discuss your legal rights and what avenues for recovery might be available to you.