On November 8, 2018, the Securities and Exchange Commission (the “SEC”) published a press release announcing that it had settled its first cease and desist enforcement action concerning a cryptocurrency trading platform, against Zachary Coburn, the founder of EtherDelta. The SEC has alleged that EtherDelta was an unregistered national securities exchange in that it provided a marketplace to bring together sellers and buyers of cryptocurrency tokens typically issued in Initial Coin Offerings (“ICOs”), “including tokens that are securities under the federal securities laws”. EtherDelta used a “smart contract” to do this trading. The SEC has, through a number of actions and speeches said that an ICO in which a cryptocurrency token that is not yet traded on a platform is issued to raise funds to build the platform, is likely a securities offering, and that at some point the token is no longer a security because it is primarily used a medium of exchange on the platform. The Commodity Futures Trading Commission (the “CFTC”) has said that a cryptocurrency token can be a commodity for its purposes, and regulates certain commodity exchanges. The CFTC has also acted against unlicensed token traders. But this SEC press release really does little to set forth when a token issued in an ICO is no longer a security. It is, however, a further indication of SEC concern with ICOs and early trading of tokens without compliance with the securities laws.
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