Will you go to jail if you do an ICO or not?
By: Jennifer Chung
Tags: ICO, Insights, Meetup, Cryptocurrency, Blockchain

The Keybox Team is delighted to have hosted our very first meetup! ‘Will you go to jail if you do an ICO or is it the way to fund a unicorn?’ was held on Tuesday night, 17th July at Cocoon Networks. We welcomed 50 attendees who listened to an engaging debate between ICO project owners, lawyers, advisors, consultants, and one former banker. You can find the panel discussion here.

Keybox CEO, David White, doing an opening speech.

Regulation is not always a bad thing

Will you go to jail if you do an ICO? Well, you could but that would largely depend on which jurisdiction you are in and the activities you undertake. Cliff Fluet, a partner at Lewis Silkin emphasised that “The real question is what is the regulation for?” The answer is that most regulation is there to protect consumers. And while that is standard across jurisdictions, how the regulation is implemented varies considerably. Which presents a risk for entrepreneurs, as Cliff went on to say “ICOs that have been done, are global. They don’t operate in a single jurisdiction; thus no single regulation apply but perhaps multiple of them.”

The ICOs scams unavoidably became part of the discussion. “A lot of them were set up by very very intelligent tech people with very little business sense.” Jonny Fry, CEO of Team Blockchain, expressed his opinion. The moderator, Max Dunne from Fintech Times, went on and pointed out that scam or not is a definition problem. “Does miss-education count as scams? Does lack of tech count as scams?” Whether 80% of ICOs are scams can be later defined. However, If you’re entering a specific industry, you need to play by the rules. It is good for you to be a genius — you can come up with brilliant ideas or use cases with blockchain — but that doesn’t make you immutable from being punished due to actions you are not supposed to perform.

Panel moderator, Max Dunne (second from the right, gentleman in white shirt), explains how scams may have different definitions.

As an Entrepreneur, managing risk is your main job

Keybox CEO, David White, argued strongly that, having founded two companies and now on the third one, his primary role is to manage risk. “And one of the first risks I want to manage is avoiding jail.” To do that you have an obligation to understand the regulation that your actions are governed by. Jonny Fry confirmed with some facts, “three gentlemen have just been given 60 years of custody in Florida. What they did was things people are actually doing on a daily basis, that is soliciting investments.” In case you don’t know, you are not authorised to urge, ask, or advise people to invest unless you are regulated.

From left to right: Emily Walker, Guy Davis, Peter Bidewell, Jonny Fry, Priyanka Lilaramani, Max Dunne, and David White. Jonny Fry talks about soliciting investments.

Still being fooled by utility tokens?

Utility tokens is a hot topic, understanding the type of token you are issuing is key to defining the regulation your ICO is subject to. The different definitions of a token lead to very different regulatory requirements and ultimately different outcomes. This utility-or-not topic keeps coming up with good reason (See: Is the Utility Token a Myth?) — claiming you’re a utility token does not mean you are, ultimately the regulator will decide, and they have all the power. Jonny Fry brought up another fact around the categorisation of the tokens, “The majority of the 3,480 or so ICOs as of yesterday, are securities.” Interestingly, the panel almost said the last word out loud all together. Howey Test is again mentioned and benchmarked despite the various opinions from panellists towards it. Cliff Fluet shared his experience, “regulators will look at the substance and not the form, no matter what you say the coin is.”

Cliff Fluet (third from the right) sharing his experience with regulators.

You won’t go to jail if you…

As the panel is about to be wrapped up, Max Dunne asked the panel to sum up his or her opinion on this topic. Peter Bidewell, a Blockchain Advisory consultant at Accenture, gave instructions to some people in the audience who are planning to do an ICO in the future, “if the benchmark is harshest by the SEC right now, and if we do all the checks, meet it, we’re covered.” David White clarified again from a risk management point of view, “keep in mind that regulators are an expensive risk to manage.” A company that raised 20 million a few weeks back spent a launch cost of 4 million. The game is getting expensive, and you have to pay to play. Jonny Fry also advised strongly, “you can still do one, just follow the rules.” Indeed, meeting the highest standards as if you were already regulated is far better than dodging the rules and think that you are going to get away with luck. Luck is never a strategy.

Emily Walker (far left) sharing her experience with US Treasury.

The event ended with a few interesting questions from the crowd — some went deep into regulations, and some were eager to see the UK government’s guideline and presence in this ‘global market’. Keybox did a short survey on Twitter a few weeks back, and our audience thought a good 3 to 5 years is what it will take for the regulation to mature. As a company with a mission of ‘security first’, we will manage the regulatory risk extremely cautiously. (See: The right way to do an ICO? Don’t do one!) Indeed, regulation is not always a bad thing, and it will help clear up the competitive landscape and mature the market.

Our next meetup will be held on 18th September, another Tuesday night to focus on crypto security. Please join the London Blockchain Security Meetup Group here and follow our Twitter page to stay tuned with latest updates.