Initial coin offerings are smashing records at breakneck speeds, and it seems the only thing that can stop them is the looming threat of litigation that will disrupt access to investors and strategies to find new revenue sources.
Did you know that paying someone to find or refer investors to your ICO in exchange for tokens or fiat may require a special license and failure to have that license could put your funding sources at risk? If they don’t have a broker-dealer license, fines may be in the future for you or your partners.
What’s This ICO Broker Dealer License For?
In the U.S., a broker-dealer license allows you to buy and sell securities, stocks, and bonds. In the U.S., all tokens are considered securities, making the license important.
During our research, we could find no cryptocurrency company that has a broker-dealer license, nor do any consultancies that we came across. This puts all those ICOs and TGEs in jeopardy because they may not be compliant with the Securities Exchange Act of 1934 and its subsequent, relevant updates.
That Exchange Act makes it unlawful for any broker or dealer to “effect any transactions in, or to induce or attempt to induce the purchase or sale of any security” unless they are registered specifically with the Securities Exchange Commission.
You may “effect” such a transaction if you refer an investor to an ICO and get a commission — either from the investor or the ICO. This may include if your company pays internal bonuses based on transactions you drive.
Some people and groups claim to be safe against the concern because they work on a “finder’s fee” because finders are typically exempt from this concern. However, their actions can move into the broker-dealer space — meaning they can’t solicit investors, provide advice, make purchase/volume recommendations, or assist with the securities offering. They also cannot “regularly introduce investors to issuers of securities.”
When reading that list, we believe that many finders advertising their services may be performing activities that fall into the broker-dealer avenue. It’s a bright red, flashing danger sign that could end up costing you dearly.
SEC Chairman Jay Clayton released a December 2017 statement that echoes this concern.
So, we saw this warning sign and pursued the broker-dealer license. For our clients, it will allow us to take investments on their behalf and market their tokens in general. It’s an extra layer of protection that may be needed as the federal government looks deeper into ICOs and determines if more regulations are needed.
Be Safe in an Uncertain World
The SEC has released a variety of comments on this space as has the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Unfortunately, neither has been very clear on the ICO space, leaving plenty of room for debate about when this license is needed. Comments cover the Exchange Act and other regulations, which sometimes even seem contradictory.
We believe that safety comes from protecting yourself now and not waiting for the smoke to clear.
For example, a FinCEN statement to Sen. Ron Wyden (D-OR), the ranking member of the Senate Committee on Finance, references the broker-dealer license when it comes to regulating merchants of commodities, which it says some ICOs may fall into and thus be subject to SEC regulations. Unfortunately, we don’t have specificity on exactly what the FinCEN deems to meet this standard.
In the most reserved reading, we believe this could be applied to almost all ICOs and their owners because they will sell this digital currency likely on an exchange where it could be converted to other virtual or fiat currencies. The conversion would likely bring broker-dealer rules into play, so a consultant with that license can protect you throughout the process.
Harvard Law School recently put together a similar report that looks at this issue and comes away with the same conclusion.
IBC Group Is the First SEC-Compliant Consultancy with This License
We take our clients’ security seriously and want to put them in the best position for a successful ICO or TGE. To achieve that mission, we felt it was best to be fully compliant with SEC regulations and take an extra step to ensure we could go the extra mile if your ICO needed it.
With the SEC viewing tokens as securities, the license will allow us to seek out the best investors for your business. You’ll get two major benefits for working with us as a licensed broker-dealer:
- Having a sole source consultancy uniquely positioned to shepherd any stage of a blockchain project into compliance before capital raising or an ICO / Token Generation Even.
- Access to consultants who combine blockchain expertise and qualifications as advisers for fiscal management, private placements, custodial agreements, and ICO opportunities beyond what any other blockchain consultants can offer.
With this capability, IBC Group can help existing, and future token or blockchain projects cross the major barrier of full compliance with SEC regulations, Know Your Customer (KYC), Anti Money Laundering (AML) and Financial Industry Regulatory Authority (FINRA) rules.
So, when our customer needs a true advisor and support team, we can offer it completely. We’re proud to be the first to achieve this licensing, and we think it is our best chance to protect our clients and shepherd them to success in the crypto space.