Your ICO Can be SEC Compliant Says New Orleans Law Firm

If you’ve kept up with news in the Cryptocurrency space, then you know the SEC has recently announced that it deems the tokens in Initial Coin Offerings (ICO) to be virtually identical to traditional securities. That has been troubling news for U.S. based coin offerings. The world of ICOs and blockchain is white hot around the country. Congress is even holding hearings on this technology today.

The processes for traditional securities approvals in an Initial Public Offering are lengthy and expensive.  It is probably out of reach for most of the startups who want to raise money through an ICO. That has left many in the space wondering if it is even feasible to do a SEC compliant ICO.  Mark Graffagnini of Cara Stone, LLP, a New Orleans law firm, says it is if proper precautions are taken.

“Your ICO has options,” he says. “It’s already legal to do a public solicitation for investment, but the caveat is that you have to collect your investors’ information and validate that they are accredited investors. That can be a limiting factor, and it’s not easy to do, but we have found ways to make it work.  One of our clients solicited 40,000 members of its platform for investment, so out of necessity, we developed systems to make that information gathering and validation scalable.”

The other option, says Graffagnini, is that you use a relatively unknown legal process called “Regulation A.” Under Regulation A, it is possible to do a “mini” public offering, similar to an IPO, but Graffagnini says it is rarely used. “The regulation and the legal structures are there, but there isn’t a lot of precedent and it requires a lot of legal knowledge most people don’t have to navigate it properly. For example, in a traditional IPO, the federal SEC approval supersedes the state approval. Under Regulation A, your offering needs to be submitted to the SEC, and you may need approval from each state,” he said. An increasing number of companies are looking to do their ICOs as Regulation A offerings now that the SEC has basically come out and told people that they thought that ICOs involve the sale of securities, according to Graffagnini.

How then, does one get started making an ICO be SEC compliant?

“It’s still an involved process,” says Graffagnini. “We have both legal and technical staff who evaluate each ICO and determine whether it will meet the criteria.  The lawyers interpret the law; the engineers interpret the code. We have proprietary systems that make managing the investor validation and state approvals feasible.  Without that, it’s a lengthy and manual process, but it’s still possible. We find ourselves being asked by companies around the world to help them with the US compliance part of their ICO because the issues are complex and changing.”

Several Silicon Bayou developers and companies are becoming more and more involved in cryptocurrency and blockchain technologies (see our other coverage, here).  As these financing tools spread, investors and companies can expect to see best practices emerge and continue to evolve.

Mr. Graffagnini also mentioned that none of these quotes constitute legal advice. For that, you would have to hire a lawyer, obviously. But, for those seeking to do their own ICO in an increasingly crowded space, the clock is ticking.