Blockvest took on the mighty SEC and won. This precedent will embolden more ICO’s to fight.
Last week it seemed that the SEC was going to destroy the ICO craze as we know it. They successfully attacked Paragon and Airfox and not only forced each to pay a $250K fine, but also to fully refund investors. Everyone expected that most ICO’s would undergo a similar treatment.
Emboldened by their wins against Airfox and Paragon, the SEC started attacking the entire ICO community, expecting similar results.
But not everyone was ready to just accept defeat without a fight. Blockvest defended itself in court and won.
A Summary of the Court’s Decision:
1. For there to be a security, the court requires that the investor must “commit his assets to the enterprise” so as to risk “financial loss”. These requirements are independently important.
“So, just buying the coins on a secondary market — even if they’re prefunctional — might not by itself result in a securities offering. Potentially powerful stuff.” — Marco Santorini
2. According to the court, in the ICO context there must be a “risk of financial loss”.
“This supports the proposition that something like an airdrop, by itself, cannot be a securities offering, even if the airdropped tokens are pre-functional. If the tokens are given away for free it is very hard to prove financial risk.” — Marco Santori
3. The SEC attempted to claim that a mere “offer” is enough to violate the securities laws. The Court went out of its way to specifically reject that argument.
“The court found that the SEC must first prove that the thing being offered is independently a security. Just offering a token isn’t enough.” — Marco Santori
4. The SEC must prove that the investor was actually offered the security.
“This means the plaintiff must prove something called “reliance” — reliance on economic inducement, promotional materials etc. Here there was a tough factual dispute over just what the investors saw before they clicked “buy”, and the court wouldn’t cut the plaintiff any slack.” — Marco Santorini