Teaching a New Dog Old Tricks: Why the Howey Test is Still the SEC's Best Friend When Examining Initial Coin Offerings

May 7, 2018

This Recent Development examines the state of the law and opinions surrounding whether an initial coin offering (ICO) constitutes an offering of securities under federal securities laws. The SEC has taken the position that each offering will be analyzed on a case-by-case basis, looking at the facts and circumstances of each offering. The number of ICOs has been expanding at an exponential pace, leaving regulators scrambling to decide whether these tokens are within the jurisdiction of a specific regulator, such as the SEC if they are securities, and how to apply existing law to this new market. If the ICO token is a security, it must comply with the applicable securities laws. If the SEC determines that the token is not a security, the company does not need to register the ICO under those securities laws. Both the issuers and the regulators need to understand what is expected of each other in order to create an environment that does not stifle innovation, while sufficiently protecting investors.