2018 has seen close to 200 ICO projects approved by the SEC in 2018. It is because of a regulatory loophole. Instead of promoting their products to the general public, companies launching an ICO only offered people considered to be accredited investors by the SEC the chance to invest in their products.
Form D in Detail
Regulation D provides exemptions for private placement offerings. Typically, these offerings are conducted by smaller companies and can be used to raise capital via either debt or equity sales. The big advantage for many issuers using the Reg D exemptions is that the securities issued do not have to be registered with the Securities and Exchange Commission.
Rule 506(c) allows an issuer to advertise and broadly solicit their offering while remaining compliant. As many issuers are hoping to raise awareness of their product or service in addition to funds during an ICO this may be an appealing exemption.
The freedom to advertise does come at a price. Issuers can only accept funds from accredited investors and the company must take steps to ensure that each investor is accredited. This means reviewing W-2s, tax returns, bank statements and/or other documents to verify the investor meets the standard. The filing of Form D is mandatory for Rule 506(c) offerings.
That means you can get your ICO out into the great American ether and, though it may sound like a lot of cash, a sizeable chunk of US citizens qualify as accredited investors. In 2016 there were 12,417,040 accredited investor households in the USA, making up just under 10 percent of all American households.
SEC Commissioner in favor of ICOs
SEC commissioner Hester Peirce, who is also nicknamed crypto mom has been lobbying for cryptocurrencies. On November 7th, 2018 she said that the US regulators are sending mixed signals. She stated:
“For example, our sister regulator, the Commodity Futures Trading Commission, has allowed the development of crypto-derivatives markets, but the SEC so far has not approved any application to list an exchange-traded product based on cryptocurrencies or crypto-derivatives trade on U.S. exchanges. Regulators have an unfortunate habit of allowing their own conservatism and their legitimate fear that they will be blamed when investments go wrong to curtail investors’ options.”
She thinks that there should be a different approach. In her own words:
“that allows investors—informed by good information about the relevant exchange-traded product and encouraged to exercise a healthy dose of skepticism—to choose whether or not to buy the product. I am working on convincing my colleagues.”