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Comment by Alex3917 | Hacker News Reader

Most people in the crypto community know that the majority of ICOs are illegal securities offerings. And by ‘in the community’ I mean people who run funds and regularly go to industry events with other fund managers, not people subscribed to random crypto subreddits.

People in the industry generally know who is dirty and likely to get indicted.

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The crazy thing is, their marks see this as validation. “The SEC warns about them, because they will revolutionize banking”

I read this and thought of the line about the universe creating bigger and better idiots. It seems to me that these scams are literally transmuting the seemingly limitless font of human greed into an evolutionary pressure that produces more gullible rubes.

I find it ironic that in a world where we've never ever had more information at our fingertips, that "investors" should be so ignorant of (recent!) history.

What are some examples of ICOs that are not illegal securities offerings?

Whether or not it's an illegal security offering, I'm not entirely sure because I don't fully understand the law. However, a hypothetical example of one purported not to be illegal would be something like crowdfunding a game. You sell tokens that will be redeemed for a copy of the game when it is finished. This would allow people who change their mind half way through to freely sell their game token to someone else who wants to buy the game (presumably at a loss since otherwise the other person would just buy the game token from the developers). There are probably lots of places where you might get in trouble though. For example, if you increased the price of the token over time, then people might buy the initial token with the expectation that they will be able to sell it for a profit later, when the developer-bought token becomes more expensive. Especially if you state that the price will increase over time, I think you're going to be in trouble (but, like I said, I don't really understand that law).

I think such a scheme, if done carefully, might actually be useful. One of the problems with things like kickstarter is that you see the plan of what's going to be done, fund the project and then half way through you see that the plan has changed, or the delivery schedule has changed and you want out. There is no way to derisk your pre-purchase.

Having said that, I have seen no actual examples of ICOs that I think are legal.

Late reply and IANAL but I don't believe you can actually do a token model where the people buying tokens early on pay less for them than they will be priced at later. Pretty sure that doesn't pass the Howey Test[1] because there is an expectation of profit. And if there isn't an expectation of profit there is little to no incentive to have a token, kickstarter would work.

1. https://consumer.findlaw.com/securities-law/what-is-the-howe...

While I don't know of any that have done this, an ICO could register their offering with the SEC, i.e. go public with all that entails, or operate within the exemptions from registration. I think their whole goal includes circumventing that stuff so as to lie better, which speaks to the attitudes and shadiness involved. The rules are indeed too onerous, but not only is the historical reason they came into existence still applicable, it's applicable to exactly this kind of scam.

> Most people in the crypto community know that the majority of ICOs are illegal securities offerings

The SEC has already said as much in respect of ICOs.

As far as I can tell, the SEC statements have changed almost nothing. Most people understood the situation even before the SEC said anything, some people still refuse to acknowledge reality even afterwards.

I have yet to meet anyone who has changed their opinion on the legality of ICOs as a result of the SEC statements. In this respect professional fund managers are basically no different than redditors, where you show them an SEC statement and they see whatever they want to see in it.

> I have yet to meet anyone who has changed their opinion on the legality of ICOs as a result of the SEC statements

Sure, but there is a difference between “I had a different interpretation of the law when I issued securities” and “I blatantly violated SEC guidance.” The latter is easier to prosecute and litigate.

People are changing their strategy.

As an American I now want to find a foreign country I can relocate to that is safe and has regulatory frameworks that are friendly to this type of new fundraising.

At least the people active in the crypto subreddits know it as well. Caring about it is another thing though.

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