Amnesty To Illegal ICOs (SCSD Initiative)
The year 2017 is considered to be a great year for the ICOs (Initial Coin Offerings) accompanied by a further additional boom – the sound of crashing regulatory system. During 2017, ICOs raised an approximate of 4 billion USD or more in investment capital.
By single count, more than 50 firms per month were using ICOs to raise funds and almost all of them proceeded without considering the U.S. securities directive.
“The DAO Report” published by U.S Securities and Exchange Commission with consideration to the U.S Supreme court acknowledged “Howey test”, concluded that certain definite digital tokens that are sold to investors are considered as “investment contracts” under the Securities Act 1933 and is therefore subjected to SEC registration. According to SEC, the majority of ICOs administered in the U.S have breached the federal law and marketing in those tokens implicates illegal and unfair purchase and sale of unrecorded securities. This had tarnished the reputation of crypto assets which led to price drop and liquidity issues for many security tokens. Furthermore, the regulatory as well as illegal vulnerability of the Initial Coin Offering backers has resulted in market instability for the existing tokens has made the situation even more worse.
A Model Amnesty Program
The ICO and SEC members need to work together without any counter-accusations and opposition to find a rational and fair solution. The solution must contain the 2 important elements:
- A medium to merge a fresh asset class into a prevailing configured set-up; and
- A system to protect the value of substantial yet legally invalidated investments to the maximum possible extent.
According to reports, many cryptocurrency promoters with their lawyers have recently approached the commission executives requesting “a broad exclusion from federal oversight”. However, it won’t restrict the SEC to interfere with ICOs “if any of the token publishers committed any scam or fraud.” The SEC has planned and executed an amnesty program for various securities law offenders which would serve as a framework for all the different complicated ICOs.
In the month of February, the Commission’s administration department revealed the SCSD (Share Class Selection Disclosure) Initiative.
According to the SCSD Initiative, if an investment consultant comes forward and reports about his violations then he can settle the matter with SEC according to the rules and regulations. After the settlement and commitments, the administration department of SEC will recommend the Commission not to charge penalties on the self-reporting consultant.
For the ICO amnesty project to work out, one needs to have those two primary elements. The publisher and distributor of the old unregistered tokens need to complete an official SEC registration procedure. After the successful completion of the registration procedure, the publisher has to trade old tokens for the new ones for all the willing buyers.
As stated by the 2017 U.S Appeals Court over the Pasternack v. Schrader –
“It is a general principle that whenever a party offers consideration to the other party in remedy an apparent infringement of the securities regulations, accepting that offer in trade of the release of claims is equal to establishing an agreement with the securities regulations.”
This proposed plan to tackle the extensive securities breach in the cryptocurrency market is not calculated as a detailed regulatory programme but just as a mere conversation starter.