The JOBS Act Rescues ICOs. How ?
By: Howard Marks
Tags: ICO, Bitcoin, Blockchain, Jobs Act, SEC

The ICO marketplace is going through some clear growing pains. With over $3.5B raised in 2017, it is clear the demand from investors is strong. However, with emerging scandals like the Tezos ICO and the SEC starting to enforce actions against companies, there needs to be a discussion about how to best embrace regulation for the ICO marketplace. In the words of Benjamin Franklin, “The only two sure things are death and taxes,”… and regulation.

Investors in ICOs need some form of protection from scammers and fraud. They need to know the company is going to make best efforts to build and deliver the service it promised while selling the utility tokens. Regulation is the only way to make CEOs and their boards of directors accountable to their investors.

In April 2012, the JOBS Act was signed by President Obama. This is the most important new piece of securities legislation since the Securities Act of 1933 when the SEC was initially formed. For the last 80 years, ordinary investors have not been able to invest in startups or so-called “risky” offerings. This was reserved for wealthy investors. In addition, the rules did not permit a company to publicly solicit investors even if they were accredited. This all changed with the implementation of the new rules:

- Title II or Regulation D 506(c) permits soliciting capital from accredited investors but the securities are restricted and only tradable to accredited investors.

- Title IV or Regulation A+ permits raising up to $50M per year directly from the general public and allow the securities to be freely tradable.

- Title III or Regulation Crowdfunding permits raising up to $1,070,000 per year directly from the general public with a one year restriction on trading the securities.

These permissions in The JOBS Act provide the right solution for companies raising capital with ICOs. They ensure entrepreneurs are abiding by SEC rules while also helping investors make informed decisions.

The main issue for token investors is where to sell those tokens. Every single exchange that currently exists is going to refuse to list a securities token because they are not broker-dealers or registered exchanges. Recently, companies emerged by offering a regulatory solution to the problem. They have announced a regulated trading system that will permit these new securities token to be traded. One example is T-zero, a division of Overstock and a strong proponent for regulatory oversight for trading tokens as securities.

The JOBS Act is a big break for U.S. corporations because it is one of the only pieces of modern securities legislation that has become law anywhere in the world. It was conceived before ICOs existed and it works well with the internet. Companies raising capital with ICOs should carefully consider using the JOBS Act Reg D 506(c), Reg A+ or Reg CF for their tokens. Doing so will allow investors reassurance that they will be able to make informed decisions, and more importantly, it will protect the officers of the companies from violating securities laws.

ICOs are a revolutionary way for companies to raise capital from the newly minted cryptocurrency crowd and it needs to continue its staggering growth while embracing the JOBS ACT nascent rules.

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