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SEC Weighs in on Initial Coin Offerings (ICOs)

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Initial coin offerings (ICOs)have been hailed as a disruptive new business paradigm that allows startups -- most of which are focused on blockchain or distributed ledger technology (DLT)-- to raise operating funds without the regulatory constraints and requirements that are applied to a traditional underwritten IPO. Being positioned safely outside the regulatory framework, ICOs have become a very attractive and flexible fundraising tool.  The SEC has made it clear, however, that some ICOs are subject to the full reach of the securities laws. ICO market participants must now distinguish those ICOs that may continue without regulatory constraints and those that must now conform to the U.S. securities laws. This treatment is not elective or optional - if the ICO involves the offering of a security, the ICO must be done in accordance with established securities law requirements or proceed under an exemption if available. In its July 25, 2017 Report, the SEC concluded that the tokens offered…