Quote: (03-10-2018 03:22 AM)[email protected] Wrote:
Don't most ICO's exclude American investors anyway?
How does the SEC tell companies outside their jurisdiction what to do?
Capital markets in the Unites States are in most part governed by the Truth in Securities Act of 1933 and the Securities Exchange Act of 1934. The 1933 act deals mainly with IPOs and the 1934 act with continuing mandatory financial reporting.
You fall under SEC jurisdiction if you try to obtain funding or trade your securities in US based capital markets. For example, Binance, Kucoin, Bithumb are not US-based capital markets and don't fall under SEC's jurisdiction whereas Coinbase, GDAX, Poloniex and others do. Any token/security listed on those exchanges is susceptible to SEC regulation. However, there are several rules in those laws that can exempt those companies/issuers from SEC requirements.
Regulation A: "It is an exemption from registration for public offerings. Regulation A has two offering tiers: Tier 1, for offerings of up to $20 million in a 12-month period; and Tier 2, for offerings of up to $50 million in a 12-month period. For offerings of up to $20 million, companies can elect to proceed under the requirements for either Tier 1 or Tier 2.
There are certain basic requirements applicable to both Tier 1 and Tier 2 offerings, including company eligibility requirements, bad actor disqualification provisions, disclosure, and other matters. Additional requirements apply to Tier 2 offerings, including limitations on the amount of money a non-accredited investor may invest in a Tier 2 offering, requirements for audited financial statements and the filing of ongoing reports. Issuers in Tier 2 offerings are not required to register or qualify their offerings with state securities regulators."
As you can see, most ICOs fall under this regulation cause their hardcaps rarely exceed 50 million USD.
Rule 504 of Regulation D: "Rule 504 of Regulation D provides an exemption from the registration requirements of the federal securities laws for some companies when they offer and sell up to $5,000,000 of their securities in any 12-month period. Except in limited circumstances, purchasers of securities offered pursuant to Rule 504 receive "restricted" securities, meaning that the securities cannot be sold for at least six months or a year without registering them.
Companies that comply with the requirements of Rule 504 do not have to register their offering of securities with the SEC, but they must file what is known as a "Form D" electronically with the SEC after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s promoters, executive officers and directors, and some details about the offering, but contains little other information about the company."
Rule 506 of Regulation D: "Rule 506 of Regulation D provides two distinct exemptions from registration for companies when they offer and sell securities. Companies relying on the Rule 506 exemptions can raise an
unlimited amount of money.
Under Rule 506(b), a “safe harbor” under Section 4(a)(2) of the Securities Act, a company can be assured it is within the Section 4(a)(2) exemption by satisfying certain requirements, including the following:
The company cannot use general solicitation or advertising to market the securities.
The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchasers. All non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.
Companies must decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions of the federal securities laws. This means that any information a company provides to investors must be free from false or misleading statements. Similarly, a company should not exclude any information if the omission makes what is provided to investors false or misleading. Companies must give non-accredited investors disclosure documents that are generally the same as those used in Regulation A or registered offerings, including financial statements, which in some cases may need to be certified or audited by an accountant. If a company provides information to accredited investors, it must make this information available to non-accredited investors as well.
The company must be available to answer questions by prospective purchasers.
Under Rule 506©, a company can broadly solicit and generally advertise the offering and still be deemed to be in compliance with the exemption’s requirements if:
The investors in the offering are all accredited investors; and
The company takes reasonable steps to verify that the investors are accredited investors, which could include reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like.
Purchasers of securities offered pursuant to Rule 506 receive "restricted" securities, meaning that the securities cannot be sold for at least six months or a year without registering them.
Any ICO can use Rule 506 if they restrict their sale to accredited investors aka as rich people.
Rule 10b-5 or Antifraud Rule: "It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
© To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.
This is a very broad rule and is used by SEC to prosecute all illegal acts.
Reporting Requirements: Any company listed on a national exchange or companies with total assets greater than $10 million and a class of equity securities held by 2,000 or more persons, or 500 or more persons who are not accredited investors, must register those securities with the SEC under Section 12(g) of the Exchange Act, that is provide periodic financial reports.
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