|From: Thehammer||7/6/2018 4:14:48 PM|
|Interesting discussion on OSTK (Overstock.com) due to their holdings of TZero and their other blockchain holdings. It is long and only about a 1/3 of the podcast discusses OSTK. I have been watching this one for a while for the reason Cohodes cited.|
Cohodes Predicts MiMedx Bankruptcy 'Imminent' And Overstock At $150-$500 (Podcast)
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|To: Thehammer who wrote (11)||1/26/2019 10:50:18 AM|
|From: Glenn Petersen|
|Your comments on the ICOs were right on the money. As always, the SEC was late to the party.|
SEC tightens the noose on ICO-funded startups
Hundreds of startups that did token sales are finding out they’re in violation of securities law— including many that were sure they did it the right way.
By Daniel Roberts
Oct 10, 2018Oct 10, 2018
During the past few months, the Securities and Exchange Commission has significantly widened its crackdown on certain initial coin offerings, putting hundreds of cryptocurrency startups at risk.
The SEC sent out a slew of initial information-seeking subpoenas at the start of 2018. Now the agency has returned to many of those companies, and subpoenaed many more—focusing on those that failed to properly ensure they sold their token exclusively to accredited investors.
The agency is exerting pressure on many of those companies to settle their cases. In response, dozens of companies have quietly agreed to refund investor money and pay a fine. But many startups that have been subpoenaed say they are left in the dark struggling to satisfy the SEC’s demands, and are uncertain of how others are handling it, according to conversations with more than 15 industry sources as part of a joint investigation by Yahoo Finance and Decrypt.
The sources, many of whom are employees of companies that were subpoenaed by the SEC or are attorneys for those companies, requested anonymity, because the SEC restricts them from discussing the matter.
ICO funding, which began in 2014, exploded in popularity last year as an alternative method to fund a cryptocurrency startup, rather than the traditional venture capital route. In an ICO, a startup sells its own digital token, typically for later use in the ecosystem the startup plans to build; buyers pay for the token in the cryptocurrencies bitcoin or ether. In the majority of cases, companies that do ICOs have not yet launched any product. Think of an ICO as buying chips for use in a casino that hasn’t been built yet.
It is hard to say precisely how many ICOs occurred during the past four years. ICO Alert says it has tracked more than 5,000 but publicly displays only 3,400 “legitimate” ones. CoinDesk, a leading bitcoin trade publication, lists only 800 in the past two years. More than $20 billion has been raised in ICOs to date, but the ICO boom peaked in January 2018. Concerns over the legality of token sales have had a chilling effect.
The core issue now for every company that did an ICO: Was its “token” a security? And if it was, did the company register its offering with the SEC, or ensure that it qualified for an exemption?
SEC sees most ICOs as securities offerings—and companies failed to complyMany of the companies that did ICOs called their offering something else, such as a “utility token” or a “ SAFT” (Simple Agreement for Future Tokens, an ICO method in which investors buy a reservation for tokens yet to be launched), but the SEC does not care about those labels. It weighs each ICO on a case-by-case basis.
In July 2017, the SEC announced that it viewed the tokens offered by The DAO, an ICO that raised more than $150 million in 2016, as securities. Then, at a Senate hearing in February, SEC Chairman Jay Clayton said, “I believe every ICO I’ve seen is a security.”
William Hinman, the SEC’s director of corporation finance, provided further clarity in June at Yahoo Finance’s All Markets Summit when he said ether does not appear to be a security, but suggested that most ICOs are securities offerings, and that, “calling the transaction an initial coin offering, or ‘ICO,’ or a sale of a ‘token,’ will not take it out of the purview of the U.S. securities laws.”
Any U.S. company offering a security must register its offering with the SEC, or qualify for an exemption. Amid the ICO boom, virtually none have registered a security offering. Thus, they must meet an exemption. The SEC exemptions include selling only to investors outside the U.S., or selling only to accredited investors, which are individuals with income higher than $200,000 in each of the past two years or a minimum net worth of $1 million.
Ensuring that investors are fully accredited requires, as the SEC spells out plainly, “reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like.” In other words, it involves a lot more than just checking a box.
Many companies that thought they did properly limit their ICO to accredited investors are now finding out that in the eyes of the SEC, they didn’t.
Robert Cohen, chief of the cyber unit in the SEC’s enforcement division, likens it to a spectrum. When the SEC calls up a company that did an ICO and asks how the company limited its ICO to certain investors, “Some companies tell us the name of the law firm that advised them, explain the know-your-customer procedures they followed, and show us an investor list that is limited to accredited investors,” he says. “At the other end of the spectrum, some point to a website statement about limiting the ICO to some investors, and possibly checkboxes, and that’s it.”
Some of the people particularly surprised to be in trouble are those who did their ICO as a SAFT, a designation that was intended specifically to be more compliant with securities law.
But some onlookers have little sympathy. Cardozo Law School professor Aaron Wright, who co-authored a paper that questioned the legality of the SAFT model, says, “There could have been other ways they could have structured it, like selling a digital good to people who actually wanted to use it, instead of predominately to speculative investors. They could have talked to the SEC first. I think the law was pretty clear that if you sell something to an investor, it’s likely a security—folks just wanted to engage in token sales, so they just kind of flouted it.”
In December 2017, the SEC shut down the $15 million ICO of a startup called Munchee and forced the company to refund the buyers. Munchee had advertised that its token would go up in value; promises of financial returns are a red flag for the SEC.
In January 2018, the SEC shut down the ICO of AriseBank, which had raised $600 million of a $1 billion goal, for falsely stating it had bought an FDIC-insured bank. In April 2018, the SEC shut down the $32 million ICO of Centra, which had been promoted by boxer Floyd Mayweather and rapper DJ Khaled, for using “misleading marketing” and “paid celebrities” to make false claims. Last month, the SEC charged TokenLot, which called itself an “ICO Superstore,” with being an unregistered broker-dealer, and charged Crypto Asset Management (CAM) with false marketing and being an unregistered investment company.
Those are just some examples that the SEC announced publicly.
Behind closed doors, many more negotiations are underway. The SEC has gotten dozens of ICOs to refund buyers and pay a fine, simply by reaching out and asking questions.
When the SEC reaches out to companies that did an ICO, it is usually through the company’s law firm. The SEC requests a vast trove of documents related to the ICO. Yahoo Finance and Decrypt have obtained communication that the law firm Cooley, which represented many ICOs, sent to one client after an SEC subpoena. The attorney letter warns, “The SEC is likely examining whether [client] should be considered a security under the U.S. federal securities laws… For the purposes of this preservation hold, ‘document’ is defined very broadly.”
Such language is leading many companies to refund their ICOs rather than attempt a legal fight. As one source at a company that got subpoenaed says, “The last thing we want is a press release they put out with only our name on it.”
Refunding tokensThe Fan-Controlled Football League (FCFL), the first ICO to be listed on the mainstream crowdfunding platform Indiegogo (through a partnership with MicroVentures), is one example. FCFL raised $5.2 million last year. In August of this year, MicroVentures quietly returned the money to the initial buyers.
There’s just one problem with refunding. If an ICO gathered the proper information on its buyers, and hadn’t yet launched its token, returning the money is doable. But for ICOs that have launched their token, refunding is not so simple.
“It’s not even really possible,” says Jony Levin, CEO of Chainalysis. “In a lot of cases people bought tokens in ICOs through exchange accounts at places like Kraken. So you can’t just send tokens back to the address you got them from, because that’s an exchange address. If ICOs are made to refund buyers, it will have to be similar to the Mt. Gox case: you make a public announcement and people have to prove they were a contributor.”
As a way to pacify the SEC, some ICOs are attempting to convert their utility token to a security token. Iconomi, which raised more than $10 million in an ICO, is one example. In a blog post this month, Iconomi wrote that its token holders, “will be able to exchange their ICN tokens for tokenized shares in a joint-stock company presented as eICN tokens. This new structure brings legal clarity for all stakeholders.”
Filecoin, Blockstack, Props, Origin, and TrustToken, the five ICOs that have listed on the platform CoinList, all sold only to accredited investors, and none have launched their actual token yet. A source close to Blockstack says the company sees its token as a utility, but out of caution, chose to treat it like a security and comply with all the relevant securities laws.
All of this SEC action may sound like very bad news for ICOs, but many in the industry have a more optimistic take: regulatory clarity will bring growth. In addition, more and more companies considering a token sale are now reaching out to the SEC proactively.
“I do think that businesses on the up-and-up can navigate through it, and that in just two or three years we’ll have clarity, and we’ll look back on this time as a speed bump,” says the CEO of a well-known tech company who has closely watched the ICO space. “Of course, if you’re a company that is dealing with an SEC subpoena, right now it doesn’t feel like a speed bump, right now it feels like a massive canyon.”
The lingering lack of clarity has driven a group of crypto companies, led by Ripple, to hire D.C. lobbyists to push Congress on behalf of the industry.
From the SEC’s perspective, there is no lack of clarity. The sniff tests are the same as they have been for decades. The SEC is applying the same securities laws to ICOs that it always applies.
“Everybody’s holding their breath for the SEC to create some kind of coin rule, and they’re not going to,” says a securities attorney at one high-profile Silicon Valley firm. “They’re applying the same laws, the same statutes, the same rules, to stocks and bonds and everything else.”
In other words, there’s even a lack of clarity around whether there is a lack of regulatory clarity.
This story is a collaboration between Yahoo Finance and Decrypt, with additional reporting by Josh Quittner.
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|To: Glenn Petersen who wrote (21)||1/26/2019 11:35:42 AM|
Thanks for the article. I was surprised and also not surprised at the SEC's lack of oversight. When I dealt with them in the past, there had a lot of educated people (MBA's JD's etc) but not many with deep industry knowledge.
I think that you watched some of the "ICO" videos that came from Howard Mark's Start Engine seminars. Mark's is really trying to educate the public and corporations attempting to invest or make offerings. The security attorneys that he had there were spot on and ahead of the SEC in understanding of how the regulatory environment would evolve. From that aspect, I am impressed with Mark's and what he is trying to do
On the other hand there were some very wealthy but naive young entrepreneurs who seemed to think it was the wild west and they were immune to regulatory oversight.
There also seems to be quite a bit of confusion regarding investments in this space. Some offerings require you to be accredited, others do not.
Over the past year, I have placed a few "funny money" investments in startups but all are definitely securities. Something else that is confusing is that some securities utilize their own token within their ecosystem.
Appreciate the interesting article and it may serve as impetus for me to catch up on my reading.
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|From: Thehammer||6/16/2020 10:47:33 AM|
|Kevin O' Leary AKA "Mr. Wonderful" has invested in and became a paid spokesperson for StartEngine. Several good videos here. |
I have been investing in various private companies for several years and those investments include StartEngine which helps connect investors with start ups.
When I worked in financial services, I was precluded from investing in initially hot IPOs and that was later extended to any IPO. These investments are certainly very risky but also a potentially an opportunity to get into the next "big thing" earlier than an IPO.
After 3 years. I am even more positive on the concept. Initially, considering my financial services background, my major concerns centered on unsophisticated investors investing their rent money in some really bad companies. Some of that has happened but not to the extent that some folks have gotten burned with digital currencies.
The "Jobs Act" gave entrepreneurs increased access to capital markets. After 3 years, I am convinced that more and more start ups will seek this avenue to grow their company. It probably isn't for the "mom and pop" corner grocery store and I typically look for investments that have the potential to scale the business geometrically.
It seems that many startups receive some level of funding from "friends and families" and perhaps some early adopting clients who feel in love with the concept. Equity Crowdfunding opens up whole new venue for a capital raise beyond bank loans, VC's or angel investors. With these large investors you typically give up considerable control as well as board seats. I see two big advantages with Equity Crowdfunding from the company perspective. The first is that you can expand your client base mainly to individuals who utilize your product and are aligned with your vision. Secondly, you maintain a much greater degree of control.
From an investor perspective, these investments are not liquid and some (there are 3 categories of crowdfunding) only allow the investment to be sold after 1 year (assuming there is a market). StartEngine has applied to become a dealer and start a secondary market, but I assume that will only apply to some of the companies that used their platform.
For the time being, these are long term investments and many will probably go to zero. That is why I take a portfolio approach and don't commit a whole lot of money. I have invested multiple times in a few of them that have appeared to be doing well and come back for additional funding.
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|From: Thehammer||7/20/2020 9:58:38 AM|
|I placed several small investments in a company called Knightscope which makes robotic security systems. They have received quite a few contracts recently. May be one of the largest crowdfunding investments ever accomplished as they surpassed $20 million. By the time anyone reads this, I suspect the fund raise will have closed but at time of posting there are 17 hours remaining.|
I was hoping to engender some discussion on this board of potential pre -IPO investments. Since all my career was spent in Financial Services, I was always precluded from investing in IPOs. I like the crowdfunding concept but the investments are not liquid, but I believe the concept has merit for companies raiding capital and investors seeking to get into new investments in a stage previously difficult to attain.
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|From: Glenn Petersen||11/4/2020 5:51:39 PM|
|The SEC Just Made Crowdfunding Way More Interesting for Small Startups|
Monday 4:11PM, November 2, 2020
Tech funding usually happens in one of two ways. In one scenario, a software or service product— think Twitter — usually sells equity to venture capitalists who expect some kind of return on their investment. Hardware products usually go the crowdfunding route, building up a list of pre-orders that they can then use to pay for manufacturing.
Recently, however, a new Securities Exchange Commission ruling allows small companies to crowdfund equity raises, albeit in ways the aim to keep small investors safe from financial sharks. Using something called Regulation Crowdfunding, the companies were able to raise up to $1.07 million from non-accredited investors (aka you and me). Now, thanks to an update in the rules, they can raise up to $5 million in the same way hardware startups can raise millions on Kickstarter, but instead of delivering a product, these Reg Crowdfunding companies deliver profits or equity.
What this means in practice is that the alternative stock market just got a whole lot bigger. Because nearly any company can run a Regulation Crowdfunding round, you can buy a part of a small company in the same way you can invest in Apple or Amazon. Further, the SEC is “removing investment limits for accredited investors” and is now taking into account salary or net worth when it comes to limiting investments by non-accredited investors, meaning it can approve your investment to a certain income level.
Why should you care about this? Well, if you’re a small software maker, manufacturer, or, hell, restaurant owner you can use this technique to go to the general public to support your business. Because the investment cap is so much higher now, you can feasibly raise enough for business expansion, product development, or geographic growth. Regulation Crowdfunding is still looked at as something suspect by so-called professional investors, but it’s nice to know you can kick in a couple of bucks to help your buddy’s model rocketry business take off.
The real benefit, however, is the removal of VCs from the tech startup business. By allowing founders and companies with strong communities and popular products to raise from Average Janes and Joes, the ruling levels the playing field considerably. While equity crowdfunding isn’t quite taking off just yet, this move to expand it could bring new technology to the fore that isn’t dependent on the whims of some big money VC in Silicon Valley.
There are other parts of the ruling including so-called demo day communications that let startups talk about their fundraiser on stage or online, “permitting an issuer to use generic solicitation of interest materials to ‘test-the-waters’ for an exempt offer of securities prior to determining which exemption it will use for the sale of the securities.” In other words, you can tell people about your investment opportunity to see how many will bite.
It’s all a bit wonky, but it just means that it got easier to invest in small companies you love and, provided they don’t implode, reap rewards from small businesses just as you would from the stock market.
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