Friday, April 27, 2018 

TokenReporter: What's the worst that could happen?

Eric Skiff of Tanooki Labs joins us this week with a post about our event last Monday. We’ll be holding our next event on May 23 in Manhattan. More information to come as we firm up the details!

JB


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Couldn’t make it to the Strike ICO PitchOff event Monday night? Here’s some of what you missed!

At Monday night’s Strike ICO Pitch-Off event, Jeff Bandman of Bandman Advisors spoke with us to share his perspective on the risks and responsibilities for companies launching an ICO in 2018. As former leader in multiple roles at the Commodity Futures Trading Commission (CFTC) including as agency’s first FinTech Advisor, Jeff brought deep insight on the real risks present in the ICO process and a surprisingly hopeful tone as he answered questions.

There were some great takeaways from the discussion, and I’ve done my best to capture the spirit of his answers to the audience Q&A below!

What are the risks for entrepreneurs considering an ICO?

Doing an ICO makes it frictionless to raise funds from around the world, but different countries have different standards. In the worst cases there are countries such as Bolivia where there’s an outright ban on ICOs and you can easily land yourself in jail.

Here in the US, you can’t be imprisoned just for doing an ICO. The SEC isn’t directly putting people in jail, although you can still get there by getting in trouble with the DOJ as well as the SEC.

That said, if you defraud people and break the law, they will come down hard. Three of the co-founders of Centra Tech (the ICO Floyd Mayweather was promoting) are in jail right now for an allegedly fraudulent securities offering.

What about security tokens vs utility tokens?

The SEC says everything looks like a security token. [The audience exchanges laughter and nervous looks.]

The good news is that if you’re doing an ICO in the US, there’s a proper way to do it. Services such as Templum’s Templum Markets are platforms that are fully licensed by the FINRA and the SEC for both ICOs and secondary markets trading. You can do the type of offering only to accredited investors.

Otherwise, you could consider doing your ICO offshore, through crowdfunding, etc. You just can’t ignore it. If you’re doing an offering going to high net-worth individuals and accredited investors, you can’t be an ostrich and put your head in the ground. You really do need a lawyer in the US to keep yourselves legal.

So a lone genius can’t just release tokens?

Well, there are different jurisdictions and it depends on where you’re planning on releasing tokens.

For example, Abu Dhabi put out a framework for different types of tokens while Dubai said a “token” doesn’t really fit in their existing categories. It’s neither a security nor a commodity. The French financial regulator (l'Autorité des marchés financiers) said the same thing.

They’re all paying a lot of attention, but it’s really different jurisdiction.

So what’s the real risk? What’s the worst that can happen?

There’s the regulators here in the US Federally, and then you have to consider individual state’s laws. Because of that it’s a really high risk area. You need to be pretty careful because It’s not just the feds.

But what’s the worst that could happen? From my perspective the worst thing is that we could make the system so safe that no-one can use it. The biggest risk is that we choke off the innovation

Other companies have applied to the SEC. Will that be the standard?

Yes, I believe so, but that’s for exchanges or ATS (alternative trading systems). The rules are a little more flexible, but the expectations of the SEC are that there is supervision and market surveillance, but these are regulated.


The March notice that the SEC put out said these are trading marketplaces are exchanges. They were very astute to put that notice out.


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