SEC Declares DAO Tokens Securities and ICOs Subject to Federal Securities Laws

The U.S. Securities and Exchange Commission (SEC) has announced that Initial Coin Offerings (ICOs) and token sales are subject to federal securities laws. The announcement follows a report based on an investigation into The DAO’s token sale in 2016, in which the Commission found DAO tokens to be securities.

Also read: ICO Hype Attracts Investors but Also Skeptics and Regulators Worldwide

Federal Securities Laws Apply to ICOs and Token Sales

The Securities and Exchange Commission (SEC) on Tuesday issued a report following its investigation into the collapse of The DAO. The agency subsequently announced that:

Offers and sales of digital assets by ‘virtual’ organizations are subject to the requirements of the federal securities laws…Such offers and sales, conducted by organizations using distributed ledger or blockchain technology, have been referred to, among other things, as ‘Initial Coin Offerings’ or ‘Token Sales.’

SEC Declares DAO Tokens Securities and ICOs Subject to Federal Securities LawsHowever, the Commission noted that not every transaction involves the offer and sale of a security, which “will depend on the facts and circumstances, including the economic realities of the transaction.” Nonetheless, Stephanie Avakian, co-director of the SEC’s Enforcement Division reiterated that “the innovative technology behind these virtual transactions does not exempt securities offerings and trading platforms from the regulatory framework.”

Overall, the SEC asserted that federal securities laws apply to those who offer and sell securities in the United States regardless whether or not:

  • the issuing entity is a traditional company or a decentralized autonomous organization,
  • the securities are purchased using U.S. dollars or digital currencies, and
  • they are distributed in certificated form or through distributed ledger technology.

Registration Required

According to the report, tokens offered and sold by The DAO “were securities and therefore subject to the federal securities law.” In addition:

Issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies… Additionally, securities exchanges providing for trading in these securities must register unless they are exempt.

Director of the Division of Corporation Finance, William Hinman, said that “investors need the essential facts behind any investment opportunity so they can make fully informed decisions.”

The Case Leading to the Investigative Report

SEC Declares DAO Tokens Securities and ICOs Subject to Federal Securities LawsThe report was issued following an investigation into whether The DAO,,’s co-founders, and intermediaries may have violated federal securities laws. “The DAO was created by and’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’,” the SEC described in its report.

However, after DAO tokens were sold but before any projects were funded, an attacker exploited its flawed code and stole approximately one-third of its assets, the SEC detailed. The subsequent investigation into the hack raised questions whether federal securities laws apply to the offer and sale of DAO tokens and whether these tokens were securities. Based on the facts presented, the Commission has determined that:

DAO tokens are securities under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”).

In the case of The DAO, the Commission has decided not to pursue an enforcement action at this time but it has published a bulletin to educate investors on ICOs. “The bulletin reminds investors of red flags of investment fraud, and that new technologies may be used to perpetrate investment schemes that may not comply with the federal securities laws,” the SEC described.

Meanwhile ICO hype has attracted regulators worldwide, along with investors and skeptics. Recently, Russia revealed that it is working on a regulatory framework for ICOs.

What do you think of the SEC’s decision to classify DAO tokens as securities and apply federal securities laws to ICOs? Let us know in the comments section below.

Images courtesy of Shutterstock, Wikipedia, The DAO

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  • Fu Manchu

    The UK declared that cars were essentially trains once upon a time too… didn’t work out to well for the local economy…

  • CryptoCrusher

    If DAO Tokens are Securities, Doesn’t that make Bitcoin and Ethereum Money in the Correct definition of the term? I am curious as to how the Feds figure that Tokens and ICO’s are in their Jurisdiction?

    • BenRickert

      That is likely their intent. Gain control. Make it do their bidding, thereby destroying it. Not happenin.

    • Gwen Ives

      NOTHING is in the “jurisdiction” because no one agreed to it; when it comes right down to it, governments don’t have jurisdiction over anything except the military, because you have to sign a contract to agree to it when you are in the military… the only other thing they have is threats of violence, an army of people in costumes with guns, and cages. It so nice to see the comments on here about people that understand who the real criminals are.

  • BenRickert

    This will only serve to drive the initiatives and their underlying commerce to less oppressive geography’s. Rightfully so. We don’t need the same corrupt thieves, governing this space. Their track record speaks for itself. Instead of embracing this technology and allowing it to grow and prosper, in typical fashion, this US government will try and control it. It is highly likely that if you want future ” in” and ” for”, Block Chain, you will be forced to move to another country other than the US. Eventually this snake ( the US Governent ) will choke itself to death. Choke on it’s own greed and corruption. There will be dancing in the streets.

  • Horia Cretan

    Mafia wants a piece of the action, under many requests from the crypto community since 2010 to make Bitcoin a currency, the Government denied that, calling BTC nothing but property, now they see ICO’s like Tezos, Humaniq and others raising in the upwards of hundreds of millions of dollars, hey suddenly find these ICO as securities, how since they are not offering stock traded in the stock market, the day i can trade coins on the stock market is the day they have a right over ICO’s. Bunch of assholes.