[Interpretation] SEC report will be fully regulated ICO? Lawyer told you “not also” (with SEC report full text download)


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Author: Sun Mingn
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Sun Ming is a co-founder of the company, he is also the earliest digital currency and block chain technology researchers and legal experts. It provides legal services for a number of chain technology companies and investment institutions both at home and abroad, and also participates in the translation of books and reports on the chain and distributed books. In response to the SEC’s DAO project survey report, as well as various media errors or misleading reports, Sun Ming lawyer wrote an interpretation and authorized the chain chain pencil (chainb.com) release. “Interpretation of The DAO Survey Report issued by the Securities and Exchange Commission on July 25, 2017”.n
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The Securities and Exchange Commission (“SEC”) has just released a survey of the DAO project last year at the ITTAR, which has been screened immediately. But unfortunately, few people have read the original report, so that made a mistake, misleading or excessive interpretation.n
nI carefully read the original report after the original, that there is a need to refine the summary of the report under the real content points, and correct a few key misunderstandings.n
nnConcerned about the WeChat public number “block chain pencil Blockchain”, reply to the keyword “SEC”, you can view the full report.n

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nA clear conclusion in the SEC reportn
nIn fact, the SEC report is a survey of the DAO project, not a general analysis of the block chain, digital currency or ICO. Therefore, the SEC’s clear conclusions are limited to the following points (only from the US legal point of view):n
nn1, The DAO project constitutes a securities issue, the relevant token is securities;n
n2, the issuer of the DAO need to register for securities issuance (unless exempt), even if The DAO itself is not a company;n
n3, those who trade the DAO tokens on the digital currency exchange, and therefore have the obligation to first registered as a stock exchange, otherwise it constitutes an offense.n
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nSecond, the need to correct a few key misunderstandingsn
n1, SEC to fully monitor all ICO activities?n
nNot alson
nAs before, the SEC’s regulatory authority is still in the securities sector, so the prerequisite for regulation is that the ICO belongs to the scope of the issue of securities – but whether the general “ICO” satisfies this premise is not a conclusion, but one in all specific circumstances The open question to be considered in detail.n
nAs the SEC report makes it clear at the end: whether a particular transaction involves securities issuance and sales (regardless of the terminology used to describe it), depending on the facts and circumstances, including the economic nature of the transaction the use of the offer and sale of a security-regardless of the terminology used-will depend on the facts and circumstances, including the economic realities of the transaction.n
nIt is clear that the SEC does not give a general conclusion to all ICOs. On the contrary, the SEC has drawn a specific conclusion only limited to The DAO this specific project.n
nnA simple logic: The DAO’s token is securities that can not be deduced that all ICO projects are in issue securities.n
nnHorizontal comparison, The DAO project in the ICO sector is not representative. Its essence and the ether square and so have a fundamental difference, as the author has “within the existing legal framework for ICO behavior of the legal analysis (b)” analysis of the article: The DAO is a smart contract in the form of public offering Variants of investment funds. Therefore, this form of “decentralized self-government organizations”, in most countries will belong to the securities sector and subject to key supervision, not to mention the strict supervision of the United States. On the contrary, the ICO community of popular projects are mostly not the aforementioned type, but to issue “functional tokens” mainly, namely: tokens in the chain of digital world with the actual use of the function, rather than as an investment income distribution or Vote for vouchers. Therefore, the DAO tokens can not be regarded as securities, it is rashly concluded that all ICO tokens are securities that are subject to SEC supervision.n
nFurther, from the point of view of legislative and regulatory techniques, neither the words “ICO” nor “token” are clearly defined and defined in the law. So anyone who refers to “ICO” or “token”, in the listener can be understood as the connotation and extension are not the same thing. A serious regulator or a lawyer will not use such a lack of legal definition and is generally misused to make a definitive regulatory or legal conclusion that would otherwise lead to difficulties in defining the scope of enforcement. Therefore, in order for the SEC to fully and comprehensively regulate the ICO, it must first have a legislative definition of the relevant terminology before it can be included in the context of the definition of the category (which may be greater or less than the current term of ICO) Supervised.n
nAs for saying that “the issuance and sale of securities with block or distributed books does not affect the regulation,” it is a nonsense. Issuance / sale of securities, whether it is recorded on paper, in their own home computer or recorded in the distributed network, from the perspective of securities regulation, of course there will be no difference. This is like a knife to kill and take an ax to kill the points of this problem, not in the criminal law point of view of the substantive – the key is whether there is murder.n
n2 Does the SEC have a new or expanded explanation of the term “securities” in order to incorporate digital cryptographic tolls into the securitiesn
nNo.n
nThe SEC used the four criteria of Howey Test to determine whether it was securities, that is, “investing money”, “common business”, “expecting profit” and “based on others’ managerial efforts”.n
nUnfortunately, the DAO features are in line with the above criteria: ICO participants have invested money (ETH), the DAO is a common cause among the participants, participants are expected to obtain investment profits, the main management of the DAO is not Participants are fixed teams. It is worth mentioning that the SEC clearly defines that ETH belongs to money (though not money) – but this is not surprising that digital money constitutes a certain amount of money that has now become a mainstream consensus. Therefore, do not think that to raise the digital currency will be able to escape supervision.n
nSimilarly, the SEC does not determine that all ICO projects will meet the above-mentioned Howey Test standards, which are still limited to The DAO in the report; nor are they modified or expanded the traditional interpretation of the term “securities”.n
nSo to blame the DAO own it … …n
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nThird, several noteworthy SEC regulatory ideas and breakthroughsn
n1, “virtual organization (Virtual Organization)” conceptn
nThe DAO in its white paper to claim to be a “virtual organization (Virtual Organization)”. The SEC therefore emphasizes that the US securities law also applies to this new paradigm – virtual organizations use distributed book / block chain technology to facilitate fundraising, investment and securities issuance and sales (… applicability to a new paradigm-virtual organizations or capital raising entities that use distributed ledger or blockchain technology to facilit capital raising and / or investment and the related offer and sale of securities). This virtual organization has no legal status at present, especially if it does not have an independent legal personality as a company.n
nThe concept of “virtual organization” appears to be simple, but the SEC report mentions that the impact it has caused is far behind. The DAO was originally an intelligent contract on the etherfront, but as the author had mentioned in a number of occasions: the smart contract has gone beyond the usual legal contract, the smart contract has the self-implementation makes it closer In an organizational entity, rather than a static ordinary contract that relies on people to perform, without self-acting ability. The two have been similar to the robot with the AI ​​and the difference between the Transformers.n
nThe SEC is not a legislature and does not go into the problem. But the legal status of smart contracts, perhaps in the future will soon become one of the challenges of human legislation. Whether it should be given to such self-executing contracts with independent legal personality, as is currently given to the law by the law? To know that human society generally gives companies such organizations an independent legal personality of the number of years is not long before the natural person (no organization) to have an independent legal personality; and the company was given legal personality makes the whole business community at the institutional level The quality of the leap, so as to promote the vigorous development of business. If there is no corporate system in contemporary society, it is difficult to imagine how to maintain the commercial operation.n
nWhether the smart contract will go on the history of the “company” has gone through a similar road, is currently unknown. Limited to space, do not do in-depth discussion. But the SEC has already stated in the report that the smart contract such as The DAO needs to bear the obligations and responsibilities of the securities laws regarding the issuance of securities, which has already begun to see the clues of regulatory thinking (which may affect legislation) Does the government agency require a contract (not a person or a company) to assume obligations or responsibilities?n
n2, the digital currency exchange concernsn
nICO issued in the tokens, regardless of whether or not constitute securities, are generally listed on the various digital currency exchanges. Therefore, the issue and listing has become inseparable from the two parts.n
nThe SEC report clearly refers to the downstream link of the exchange, stressed: the exchange listed on the listing of those securities that constitute the token, but also in accordance with the standards of the stock exchange and supervision, otherwise it is illegal. But it is clear that in reality all the major digital currency exchanges are difficult to meet the statutory requirements of the stock exchange, because they do not feel that they are listed on the securities.n
nSo the risk came: any digital currency exchange, if the day listed a new currency, the new currency happens to be SEC as “securities”, then not only the ICO sponsor team illegal, together with the exchange to be together with the Penalties. It is important to know that the ICO team is likely to spread all over the world so that the SEC can not manage this distributed guerrillas, but the digital money exchanges are usually in fixed places, especially those in the US exchange, and their survival is better than ICO The team is long and stable. So run a monk can not run the temple, an ICO if the composition of the securities issue, the exchange is more likely to suffer, than the ICO team to bear greater legal risk.n
nThis necessarily means that the future (US or service American) digital currency exchange will be more cautious when listing the new currency. Such as the United States Poloniex recently for some time not listed some popular new currency, it may be out of this reason … …n
n3, “to the central self-government organizations” in the end how to center?n
nIn the process of applying the Howey Test to determine whether the DAO issued securities, the fourth standard is worth mentioning, “based on the management of others”.n
nAt this point, the SEC’s judgment is based on: (1) the Slock.it team and The DAO’s Curators actually managed the substantive operation of The DAO, so the relatively fixed staff played the success of The DAO The key role; and (2) the DAO tokens holders on the contrary, they have the right to vote on the face, in fact, because of too scattered and difficult to communicate, so rarely participate in the DAO operation also play a control role, Only have their table.n
nSo the SEC concluded that the DAO tokens holders were passively dependent on the Slock.it team and Curators’ efforts. Regardless of the actual situation (and indeed), The DAO was originally targeted at a centralized intelligent contract, but the SEC was identified as a “centralized” approach in operation. And even more ironic is that many of these acts are written in The DAO white paper, so the SEC was cited as a basis.n
nThe advice of the SEC gives a wake-up call for the future ICO team: at least one of the smart contract, the underlying block chain platform, or the self-centered self-government organization, In the white paper, it is stated that his team will not manage the future operation of the project and relies on the distributed efforts of the community – especially if it does not carry out any (management) behavior or any transcendental power that is different from the ordinary negotiator – otherwise the regulator The development team will be identified as the center of the project, and the coin only rely on the development team’s efforts to ride.n
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nFourth, the conclusionn
nnThe SEC’s report is nothing new, but confirms the findings and conclusions of the DAO project. At the same time as the Dao has long been liquidated, SEC will not continue to pursue. While the SEC’s past regulatory attitude has not changed substantially.n
nnnFor the ICO sponsor team, its compliance risk has not increased, and the need for compliance matters still needs to be done, especially for the US team. But the team should avoid becoming a special member of the community with distinguishing features, such as engaging in acts that other members do not engage in or have the power of transcendence, on the contrary, to maintain the discrepancy between themselves and other members of the community.n
nnnIn the case of digital currency exchanges, special care is required when listing new coins and should be given prior legal advice to ensure that the new currency does not constitute securities.n

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