3 Ways ICO Companies Can Avoid SEC Subpoenas

Michael Hull
Chief Editor, FamilyOffices.Today

The U.S. Securities and Exchange Commission (SEC) sent subpoenas to 80 ICO companies 5 days ago, including tZero and TechCrunch’s crypto fund. The action came after the SEC gave a stern warning to investors on possible ICO scams. In recent months, the regulator has issued a number of suspensions to companies suspected of unlawful token and coin trading.

These actions are in keeping with the SEC's mandate as regulator and protector of investors’ rights. In his address to the U.S. Senate, SEC Chairman mentioned that ICOs largely fall under
securities, and thus issuers must observe the securities laws.

Avoiding SEC Subpoenas

Even as SEC investigates ICO activities within the US, companies can avoid getting subpoenaed in future by doing the following:

1. Complying with SEC Requirements

To avoid being subpoenaed, a company must comply with all the requirements of the SEC. If you have a utility token, you must still declare it with the SEC so that you have essential exemption documents.

Michael Collins, co-founder and CEO of
GN Compass, says, “Keep up to date with regulation requirements and avoid raising funds via ICO’s in the US unless you are fully registered and compliant even though you may have a utility token."

Sebastian Stupurac, co-founder of
Wings.ai concurs that “the SEC is doing the right thing to ensure that US laws are being followed.”

He says, “I suppose engaging the SEC would be one step but with literally thousands of ICOs globally I would think the American taxpayer would rather not fund regulatory consulting services. We already spend too much money being word policeman."

Further, William Skelley, co-founder of William Chris, a Dubai-based consulting firm, advises against rushing to launch ICOs until complete compliance has been realized.

"I would suggest you share what you are doing with the SEC to keep an open line of communication. Finally, if you are unsure whether or not you are 100% compliant, get more advice and do not move forward until your legal team says you are ready. Skipping steps to rush to market is how you get in trouble,” he says.

2. Having Clear Regulations Upfront

For all key players in the cryptocurrency landscape to be compliant, there must be clear-cut guidelines from the SEC. Such rules can help clarify what should be considered security in this new financial ecosystem.

Zynis says, “It is unclear to many if some of these things really are securities. We can certainly say that the intent is not to be trade security by many of these firms, and the SEC should step up to being a forthright steward and provide this new generation of entrepreneurs with guidelines.”

Having regulations that make it easy to distinguish between a security and a utility token is critical. According to Skelley, this is what any ICO company should do first and foremost.

“You need to really understand what you are offering and the structure you are using. Is your ICO a utility token or a security token," he says.

This knowledge enables companies to explore exemption options. "After you determine this, you can hire the appropriate legal team to ensure you are in compliance and are properly using any exemptions the SEC may offer such as Regulation D or Regulation CF," Skelley says.

3. Building Minimum Viable Product

Proof first before payment' is the other path that firms planning to launch ICOs can take. The idea here is to develop one’s ecosystem first before plunging into an ICO.

Eugene Liebermann, CEO at
CAR token company, says, “The answer seems to be obvious, but at the same time this matter is incredibly versatile. My personal recommendation and our actual plan for US expansion is to build the MVP and deliver the functionality to use the token within the ecosystem you are building before you distribute tokens between your investors and token buyers.”

His caution to ICO firms, “Don’t fall into sending tokens just because one or two impatient buyers of $100 allocation can’t wait to see their tokens on the crypto wallet and you experience a bombardment in the Telegram channel from them every day.”

An environment with too many restrictions on cryptocurrencies may not encourage technological innovations or prevent creative projects.

Collins notes, "The SEC is doing what they think is right. I feel that they are trying to protect the public from scam ICO’s, companies etc but these actions will stifle innovation in the crypto space and push more entrepreneurs to other markets either by incorporating elsewhere or launching ICO’s and platforms elsewhere."