SEC’s Double Standard Towards ICOs is Irresponsible, Un-American, and Wrong
“If I’m not confused, I’m not thinking” Albert Einstein.
Gotta love Google. A few moments on a toilet may bring you just as much enlightenment as would a full semester at Yale in 1986. But you have to be careful with entering “ICO” in the search bar because you immediately get pummeled by pages and pages of ads peddling ICOs for anything and everything — from all kinds of “cloud solutions” to “monetizing your likes” to tokenizing pot.
Pretty much, all of those tokens claim the market value in tens of millions of disgustingly centralized US dollars. To me, the market value of something as ephemeral as a decentralized digital asset is still a huge question mark. Uber, Snapchat, and Twitter have shown us the fickle nature of even somewhat centralized and well established digital assets, so when it comes to PandaCoin, SkinCoin or Coinye West (although, this one didn’t materialize because of the naming dispute with Kanye West) I’m skeptical. I don’t mean to sound like a belligerent old fart, but unless you’re backing your tokens with something real, ICO is at the very best a highly speculative investment opportunity, and at the very worst a swindle. But the burning question remains: what right does the Securities and Exchange Commission have to claim that from now on digital tokens are “securities” and unleash the full extent of its wrath on something as harmless, ubiquitous, and mundane as an Internet scam?
Take one of the largest ICOs of 2017, Stox.com. Surprisingly, the one who — sort of — got in trouble promoting Stox was Floyd Mayweather who did what millions of teens do every day for free — put a stupid picture on Instagram. I am not sure about the promotional value of the phrase “I’m gonna make a $hit T$n of money on August 2 on the Stox.com ICO” but apparently, when uttered via a popular social network by the world’s greatest featherweight boxing champ while inside a private jet with a $hit T$n of cash laid out on a tray-table in bricks of $10000, it works. The SEC pounced on the would-be ill-doer with a set of “anti-touting regulations” that date back to the Securities Act of 1933 and issued a “harsh warning” to celebrities who are exploring ICOs for promo cash. Tokens are now assets, goes the SEC, so you must disclose “the nature, scope, and amount of compensation received in exchange for the promotion”. How very American!
Mayweather never lost a minute of sleep over this, though. In fact, nobody lost a minute of sleep over the Stox.com ICO but many should have. Promo-journalism on very expensive resources aside, after buying the $5 million “invest.com” domain and raising $20 million from investors to build a “totally new social trading platform” (Etoro comes to mind along with literally a dozen of others throwing the same pitch) Stox tanked and started laying off people. Then, struggling to meet the investors’ expectations, Stox (now Invest.com) bought the binary options company called AnyOption.com to retain its consumer database but even with that boost was unable to get the numbers to the promised 50 million unique users a month. Stuck with a measly 250K forex aficionados monthly, and a grim prospect of having to pay back a “$hit T$n of money,” Stox-Invest is now left to its own devices but for some reason, the SEC ain’t worried. That doesn’t mean that if the SEC isn’t concerned, you shouldn’t be either.
That’s my point: you should be the only one sticking your nose in your portfolio. Forget what Paris Hilton says about LydianCoin or what DJ Khaled has to say about Centra. You — and nobody else!
Speaking of Centra (by the way, Mayweather had had his finger in this pie as well), there’s an example of something that should definitely be scrutinized way beyond one of the founders’ DUI and the subsequent charge of perjury. Miraculously, the SEC is staying silent over a $32 million ICO for a prepaid cryptocurrency card — a prospect that leaves some of the crypto enthusiasts quite puzzled.
I have no idea, how the two twenty-six-year-old former luxury car salesmen with no crypto experience whatsoever were able to raise $32 million but Sam Sharma and Raymond Trapani did it. Again, with piles of cash displayed on their Instagram and with pictures of them behind the wheel of supercars they were able to convince investors that it’s a good idea to give money to a company whose chief executive is not a real person. When VISA got involved emphatically pointing out that the prepaid crypto cards with VISA logos featured on the Centra’s website are in no way authorized, Centra tried switching to Mastercard only to find out that Mastercard would be equally unforgiving. At that point the world has discovered that Sharma is just a petty crook: from run-ins with his landlord to being sued for trying to sell cars he didn’t own… One would think, the SEC would be all over this one. Publicizing a take-down of this magnitude ($32 million!!!) would send a really strong message to all fraudulent ICOs of the future all over the globe, not necessarily in the US — look out. Nope. The regulator is keeping absolutely quiet. Unlike in the first ever case when an alleged ICO fraudster has indeed been prosecuted.
Now, here’s a genuinely fine idea — to tokenize the real estate business. Real estate is a solid asset and to invest $20 in RECoin would mean to buy a share of a market value of an auspicious apartment complex or an office building somewhere. Indeed, why not try turning your $20 into $25 when the RECoin Trust makes a purchase on your behalf and the property it acquires appreciates 20% over a year? Not, says the SEC, and files federal securities fraud conspiracy charges against the RECoin founder Max Zaslavskiy. According to Bloomberg, acting U.S. Attorney Bridget M. Rohde said in a statement that “Zaslavskiy knew that no real estate […] was actually backing the investments.” Well, yeah, because Zaslavskiy had shut down the ICO in August 2017, as soon as it became apparent that RECoin doesn’t fit into the new rulebook. “My organization never neglected a single request for a refund from investors, Zaslavskiy claimed in a press release. Not a single person who thought that their money wasn’t given the treatment it deserves was hung up on or turned down for the guaranteed money-back.” Nevertheless, the suit stands, and Mr. Zaslavskiy’s parents had to take out a mortgage on their home to pay the $200000 bond so that their non-violent son who never stole a dime from anybody (unlike Centra’s founder Sam Sharma) doesn’t end up at Rikers Island. Note that the entire amount generated during the incomplete RECoin ICO was… Wait for it… a little over $300000 — a chump change by the standards of virtually any ICO mentioned here.
What is particularly annoying in the case of RECoin is that while SEC was terrorizing Zaslavskiy, at the same time, it was investigating a much more significant debacle with the DAO crash. In its report on July 25, 2017, the SEC stated that “…the DAO was created by Slock.it and Slock.it’s co-founders, with the objective of operating as a for-profit entity that would create and hold a corpus of assets through the sale of DAO Tokens to investors, which assets would then be used to fund “projects.”” A goal pretty much identical to that of Max Zaslavskiy’s and RECoin, wouldn’t you say? The report further states that “…the DAO has been described as a “crowdfunding contract,” but it would not have met the requirements of the Regulation Crowdfunding exemption because, among other things, it was not a broker-dealer or a funding portal registered with the SEC and the Financial Industry Regulatory Authority.” However, apparently, the nameless, bossless, locationless so-called “Decentralized Autonomous Organization” that managed to raise $34 million and $50 million in ETH in less than a month, lose a third of it to a hack, and then disappeared was not a target worthy of criminal investigation and subsequent prosecution.
For some reason, Initial Coin Offering is considered a grey area whereas, in reality, it is a perfect way to finance an idea. What in this reporter’s view is particularly damning is the astonishingly unfair practice of double standards when some ICOs are victimized on a whim, since there are virtually no precedents of criminally prosecuting allegedly fraudulent ICOs as of yet. One wonders how much thought and analysis went into the infamous SEC ruling on July 25, 2017, after which the blockchain tokens sold through token sales all of a sudden turned into securities, and became subject to the corresponding law giving rise to this outrage.
Fashioning ICO regulations after IPO, which needs to be monitored and regulated because during an IPO an existing business is selling shares of its face value to investors, is not only silly, it’s borderline immoral because it resembles a censoring of thought. For instance, if one doesn’t believe in the idea of buying indulgences on the Internet, one shouldn’t be clicking on headlines such as “TetzelCoin Launches SIN Token to Tokenize Forgiveness.” That’s it, just don’t click on it. And if you did buy $20 worth of “forgiveness tokens” hoping (as alleged by the TetzelCoin creators) to get saved simultaneously with wiping clean someone’s medical debt, what does SEC have to do with it? If one feels that it’s a good idea to entrust one’s soul and wallet to two former medical debt collectors, be their guest. And if the investor later finds out that his or her money is gone unlike their medical debt, which is still there, that’s when — and only then! — they file a complaint and go to the authorities, not during the ICO!
So, what gives? Is RECoin a classic example of the SEC going after the little guy while being unable to regulate the multibillion-dollar industry meaningfully? Looks precisely like it. It is imperative for the SEC to create a precedent so that the US government has a clear roadmap to continue to prosecute the ICOs of the future.
In all honesty, it’s perfectly understandable. Very soon banks stand to lose trillions in deposits, lending, intermediary services they provide, various clearing systems they set up for their clients, currency exchange rates and adjacent services and so on. In one way or another, the global financial system is headed for a real revolution and this time “adapting” will not do. The blockchain technology is extremely dangerous for the ruling class. The decentralization of record-keeping in the financial services, the alternative money, the looming complete independence of an individual from a state apparatus — the list goes on and on. Knowing that the power will fight tooth and nail for its continuous right to tell people what to do, how to live, and how to conduct business, we have to do something. Perhaps a political movement with the specific purpose of giving a political weight and patronage to all blockchain developments on the planet? Anyone?