Federal and state regulators aren’t the only ones taking a closer look at initial coin offerings: so is the plaintiffs’ bar.
In the last month alone, class actions have targeted five ICOs, alleging they were unlawful sales of unregistered securities, and securities lawyers say more are sure to follow.
“The possibility of these types of lawsuits shouldn’t be a surprise to anyone in the industry at this point. The SEC has been very vocal recently that it will deem most tokens or coins issued through ICOs to be securities under U.S. law,” Benjamin J.A. Sauter, a securities litigator at Kobre & Kim LLP told Bloomberg Law. “Companies selling new tokens or coins through ICOs to U.S. investors are taking a calculated risk.”
No federal court has addressed whether ICOs implicate securities laws and the question is still up for debate, Joshua Ashley Klayman, of counsel at Morrison Foerster LLP, told Bloomberg Law.
“Many people bringing suits may just assume that all tokens are securities, but you actually have to do an analysis on the particular token and token sale itself,” said Klayman, referring to the Howey test, which says a security exists where there’s a monetary investment in a common enterprise with most profits coming from others’ efforts. Klayman, cofounder of the firm’s Blockchain + Smart Contracts Group and chair of the Wall Street Blockchain Alliance Legal Working Group, cautioned against “jumping to conclusions” about which ICOs are sales of securities before courts have had a chance to weigh in.