A majority of the Initial Coin Offerings (ICO) began to benefit from the US SEC (Securities and Exchange Commission) rules and regulations that were implemented in 2015. The Regulation ‘A’ and the Crowdfunding (C.F.) Regulation permit companies to raise funds ranging from $1 to $50 million dollars according to previous reports.
$50 Million Dollars Limit
The new ICO market has exploded between 2017 and 2018 with thousands of new projects gathering funds to develop different crypto-related and blockchain platforms. Nevertheless, many of these new projects attempted to avoid regulations stating that they would create a utility token instead of a security token. The unregulated situation has resulted in many virtual currencies located within a grey area with an ambiguous definition.
But, these ICOs could face charges and penalties in the future. Additionally, there are several unregistered securities that the Securities and Exchange Commission does not yet control. Any project that is considered a security but never registered as such initially will get penalized. The project will then be required to register as a security, pay a fine and return all investors’ funds.
At the beginning of November 2018, the SEC announced various enforcement measures against AirFox and Paragon ICOs. Both projects got considered illegal for selling unregistered securities. They will have to return all funds to the investors and pay a fine.
SEC also added two fundraising regulations to bring sanity in the growing ICOs market, Regulation A(+) and Regulation Crowdfunding (C.F.) The new regulations were added to the existing Securities Act of 1933 enabling projects to raise funds not exceeding $50 million dollars without the need of running an Initial Public Offerings (IPO).
Mostly, Initial Public Offerings are quite expensive to manage and only allow a few investors to participate in the process. Although the regulations got implemented over three years ago, they took effect recently. Only 30 companies were previously registered as funding portals or broker-dealers. All the others were operating illegally.
The new development may allow a new wave of investors to start participating in ICOs. Also, the application of these regulations can increase the compliance and confidence of all investors.