First Federal Decision Rules Digital Asset in ICO Not a Security

Fenwick securities enforcement co-chair Michael Dicke spoke with The Recorder about what appears to be the first federal decision that a digital asset offering in an ICO is not a security.

U.S District Judge Gonzalo Curiel of the Southern District of California turned down a U.S. Securities and Exchange Commission request for a preliminary injunction against the backers of the Blockvest ICO, finding that the SEC couldn’t show that investors bought into the Blockvest offering with the expectation of making a profit from the efforts as others. This was part of the three-part “Howey” test for the definition of a security under the 1946 U.S. Supreme Court decision in SEC v. W.J. Howey Co.

Dicke, formerly the head of enforcement for the SEC’s San Francisco regional office, noted that this case signals that courts are paying close attention to the question of whether digital tokens fit the legal definition of a security—even in cases where there are allegations that ICO investors are being defrauded.

Dicke told The Recorder the case demonstrated that the question of whether an individual ICO is a security will depend on how it is offered and sold.

“Is this digital asset a security? That’s not the right question to ask. I think that my biggest takeaway from the order is that the SEC failed to prove that the way it was ‘offered and sold’ meets the definition of a security,” he said.

The full article is available on The Recorder​ (subscription required).