Blockvest, a blockchain-based project that held an ICO, was recently in battle with the SEC over their digital asset. The Federal Court however, ruled in favor of the ICO project, in an unprecedented move.
Marco Santori, the President and Chief Legal Officer at Blockchain, said in a statement:
The SEC brought an enforcement action against a company called Blockvest, alleging that Blockvest’s ICO was a securities offering. SEC asked the court for a preliminary injunction (an order freezing Blockvest’s assets, among other things) so it called a hearing on the evidence.
The Securities and Exchange Commission failed to prove that Blockvest sold a security crypto asset without the necessary license, thus the court refused to acknowledge the token as a security solely based on the way it was issued.
The SEC seems to have really picked up the notch when it comes to pursuing legal actions against ICOs they deem to have acted illegally in accordance to U.S. regulations. However, it is good to see that, projects can actually fight back against such allegations.
According to the court, in the ICO context there must be a ‘risk of financial loss’. This supports the proposition that something like an airdrop, by itself, cannot be a securities offering, even if the airdropped tokens are pre-functional. Admittedly rare today but possible.
The Blockchain executive also explained that the Federal Court went out of its way to see that this case was resolved accordingly and cemented their stance on the fact that, airdrops and simple token offerings, by themselves, do not constitute a securities offering.
This recent ruling has created a more complex environment for both ICO investors and the SEC to file lawsuits against initial coin offerings in order to challenge the issuer of the digital asset and claim that it is a security under U.S. laws.
Santori further clarified:
As my colleagues in twitter law have stated, SEC pretty much got what it wanted with regard to Blockvest. No bloody noses here. The precedent, though, is lasting, and definitely raises the bar for any plaintiff – public or private – seeking to sue ICO issuers. It’s going to be more complex, I think, than any of us realized. And a lot gets lost in the world of ICOs, like remembering.
After this, most probably, plaintiffs will become more cautious when filing lawsuits against ICO projects since the court requires them to explicitly state how the crypto asset in question is a security and also, to prove that, in the case of ICO investors, they invested in the token sale by looking at the website, white paper, or some other relevant information about the project.