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Jamie Foxx, Luis Suarez, William Shatner, Floyd Mayweather and Paris Hitlon have all advertised Initial Coin Offerings in the last few months. I have criticized such behavior before and warned that engaging in it might be unlawful. Today, the SEC publicly issued a warning to investors and celebrities regarding the endorsing of ICO’s as well.
“Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments. These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement.“
In particular, the SEC warns celebrities that advertisement of ICO’s may:
– be a violation of anti-touting privisions
– make the person liable for potential violations of the anti-fraud provisions, for participating in the promotion of an unregistered offer and sale of securities
– make the person liable for acting as an unregistered broker.
The statement by the SEC also once again warned investors to research their investors properly and be vigilant regarding ICO’s.
This statement on ICO’s is not the first by the Securities and Exchange Comission, and it will definitely not be the last. Although the statement is welcomed, what everybody is really waiting for is for the SEC to give provide token sales with legal uncertainty.
In their DAO report, the SEC confirmed what we all already suspected: a token can be a security. Although they have not yet given any particular guidance on when a token will fall under the definition of a security, it is clear that, to test whether or not this is the case, the Howey-Test will be applied.
More recently, the SEC also filed charges against 2 offerings by charging a businessman and two companies for defrauding investors. The businesses, Recoin Group Foundation and DRC World (also known as Diamond Reserve Club), allegedly made material misstatements to investors, with the sole purpose of defrauding them.