Author: Aaron Kaplan / Source: VentureBeat
News broke this week that the SEC has been issuing a large number of subpoenas to Initial Coin Offering (ICO) issuers, targeting technology companies, and their investors and advisors.
Generally, subpoenas are the guided missiles of SEC enforcement actions.
While the SEC has been making noises about the illegality of ICOs for months, issuers and their enablers are now firmly in the crosshairs.The writing has been on the walls for quite some time that a crackdown would be coming, but many in the cryptocurrency community chose to ignore it. Before subpoenas hit, advisors were giving false assurances to those looking to avoid SEC scrutiny.
On October 2, 2017, the SAFT Project introduced its SAFT Project White Paper to the world. The SAFT White Paper proposed a modification of the existing SAFE framework for ICO token sales, in effect repackaging the SAFE funding mechanism to define tokens as utilities rather than securities. Under a SAFT, or Simple Agreement for Future Tokens, developers raise capital from accredited investors pursuant to a Regulation D offering. The developers use the capital raised to develop the underlying network, and upon completion of the network, the SAFT is converted into a right to purchase tokens at a discount. The SAFT White Paper contends that the tokens purchased by exercising that right are non-security, utility tokens that are magically free-trading. Problem solved.
Except it’s not. In reality, the SAFT, as opposed to an innovative funding mechanism, is simply a window-dressed Regulation D 506c, that attempts to propagate the misguided notion that utility tokens are not securities.
Let’s play this out. Accredited investors invest in a SAFT financial instrument, which is admittedly a security, and at some point later convert their investment into tokens at a discount. The right to purchase the tokens at a discount is clearly attached to the initial security investment. The SAFT White Paper declares, “The SAFT offers investors a discount on the final token…
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