The SEC has issued a statement today announcing that the DAO under Etherem is in fact subject to regulations as a security. This opens up a whole new realm of risks for not only the DAO, and all the recent ICOs, Ethereum, but cryptocurrency in general. This has the potential to blow a huge crater in the cryptocurrency market as a whole as the ICO bubble pops and sucks a large portion of the cryptocurrency market share out of the market with it. I don’t want to be the one who said “I told you so”, but… I told you so.
Immediate market reaction of ETH as of the time of posting:
SEC Issues Investigative Report Concluding DAO Tokens, a Digital Asset, Were Securities
U.S. Securities Laws May Apply to Offers, Sales, and Trading of Interests in Virtual Organizations
FOR IMMEDIATE RELEASE
Washington D.C., July 25, 2017—
The Securities and Exchange Commission issued an investigative report today cautioning market participants that offers and sales of digital assets by “virtual” organizations are subject to the requirements of the federal securities laws. Such offers and sales, conducted by organizations using distributed ledger or blockchain technology, have been referred to, among other things, as “Initial Coin Offerings” or “Token Sales.” Whether a particular investment transaction involves the offer or sale of a security – regardless of the terminology or technology used – will depend on the facts and circumstances, including the economic realities of the transaction.
The SEC’s Report of Investigation found that tokens offered and sold by a “virtual” organization known as “The DAO” were securities and therefore subject to the federal securities laws. The Report confirms that issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies. Those participating in unregistered offerings also may be liable for violations of the securities laws. Additionally, securities exchanges providing for trading in these securities must register unless they are exempt. The purpose of the registration provisions of the federal securities laws is to ensure that investors are sold investments that include all the proper disclosures and are subject to regulatory scrutiny for investors’ protection.”
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