In 2017, over $1.3 billion has been raised by start-ups through Initial Coin Offerings (“ICOs”), a relatively new form of financing technique in which a company (typically one operating in the digital currency space) seeking to raise seed money makes a “token” available for sale, and the token gives the purchaser some future right in the business or other benefit. Amidst much anticipation, on July 25, 2017, the Securities and Exchange Commission (“SEC”) released a Report of Investigation (“Report”) under Section 21(a) of the Securities Exchange Act of 1934 warning the market that “tokens” issued in ICOs may be “securities” such that the full breadth of the U.S. federal securities laws may apply to their offer and sale. The Report and a simultaneously released Investor Bulletin offer guidance and serve as a notice to the market that the SEC will be policing this new financing technique.
