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<p>The Securities and Exchange Commission (SEC) <a href="https://www.sec.gov/litigation/litreleases/2019/lr24601.htm">iced</a> erstwhile token issuer ICOBox last week. Indeed, the <a href="https://www.sec.gov/litigation/complaints/2019/comp24601.pdf">complaint</a> filed in a California court alleges ICOBox didn't register its $14.6M token sale and thus should disgorge the money. The case will likely settle quickly as the alleged facts are damning and related <a href="https://www.crowdfundinsider.com/2019/08/150997-paragon-coin-starts-processing-sec-mandated-refunds-for-funds-raised-via-ico/">Paragon Coin already surrendered</a>. Unlike <em><a href="https://www.thecrowdfundinglawyers.com/kik-lawsuit-must-decide-decentralization-question/">SEC vs. Kik</a></em>, this case won’t color token law. Questions like <a href="https://www.thecrowdfundinglawyers.com/kik-lawsuit-must-decide-decentralization-question/">“sufficient” decentralization</a> and <em><a href="https://www.thecrowdfundinglawyers.com/sec-goes-for-kik-will-it-get-knifed/">Howey test utility</a></em> will resolve elsewhere. But the case offers lessons in timing, compliance, best approaches to contesting SEC rules. And none of the parties here garner much sympathy. ICOBox, investors, and the SEC all acted faulty.</p>
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<h2 style="text-align: center;"><strong>ICOBox officers invited SEC scrutiny by promoting potential gains and downplaying risks &nbsp;</strong></h2>
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<p>Over 2,00 investors bought ICOBox tokens in 2017. Company
officers raised lots of <a href="https://www.sec.gov/litigation/complaints/2019/comp24601.pdf">red flags</a>
with performance promises, discarded risks, and downplayed SEC moves that endangered
the sale. Afterward ICOBox’s marketing and compliance shop supplied ICO issuers
myriad services. But also allegedly performed broker-dealer services, taking “success
fees,” and “transaction-based compensation.” </p>
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<p>ICOBox didn't register the sale or fully explain why it didn’t
need to. When would-be investors asked about risk, officers blew off concerns.
They described the sale as for “product tokens” and “discount cards.” They dismissed
the <a href="https://www.sec.gov/news/press-release/2017-131">just-out SEC DAO report</a>
and claimed without apparent legal backing the tokens’ <a href="https://www.sec.gov/litigation/complaints/2019/comp24601.pdf">“purpose”
and “functions”</a> dodged registration. Afterward their alleged broker-dealer moves
practically begged for SEC enforcement.</p>
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<div class="wp-block-image"><figure class="aligncenter"><img src="https://www.thecrowdfundinglawyers.com/wp-content/uploads/2019/09/Ole-Miss-its-true.gif" alt="" class="wp-image-3852"/></figure></div>
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<h2 style="text-align: center;"><strong>Investors with ICO FOMO should think more clearly &nbsp;</strong></h2>
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<p>Investors who purchased the tokens and others through ICOBox
fare no better in hindsight. Many knew of the DAO report, and those who invested
apparently didn't seek a clearing legal opinion. </p>
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<p>ICOBox’s <a href="https://icobox.io/">website</a> lists no
physical address, no phone number, not even an email address. (It does have a
contact form). There are no real pictures or team bios. No location listing. It
purports to offer legal opinions that assure potential clients of offering
legality but name no lawyers or firms. The site invites the impression of lucky
amateurs who caught a wave and ended up dazed with a $14.6M stash.</p>
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<p>The site’s press releases also scream Stay Away! Officers constantly churn. The CEO for example lasted <a href="https://icobox.io/pressreleases/121418_6">five months</a>. Others notify readers of <a href="https://icobox.io/pressreleases/011419_1">changing business models</a> and shifting priorities. And some are <a href="https://icobox.io/pressreleases/010219_1">contradictory</a> like “It is clear that in 2019 investors will mostly be focused on the security token market, because this approach meets the regulatory requirements . . .” Okay but what of ICOBox’s listed previous and current clients that didn't follow the rules, not to mention its own token sale.</p>
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<p>In short, investors not heeding these warnings may need a
hard lesson in due diligence and the dangers of FOMO.</p>
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<h2 style="text-align: center;"><strong>The SEC’s token approach and guidance is a case study in bureaucratic malpractice</strong></h2>
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<p>Finally, the SEC shouldn’t take any victory laps. It will likely get a quick win, but its posture deserves no praise. The complaint emphasizes ICOBox’s timing, selling tokens after the infamous DAO report. Just so. The SEC released the report on July 25. ICOBox announced its token sale on July 27 and started selling on August 7.&nbsp; At the time confusion reigned about what the report meant and how vigorously the SEC would pursue errant issuers. The <a href="https://www.thecrowdfundinglawyers.com/sec-unleashes-hurricane-ico/">SEC did not even bring charges against DAO</a> but instead left it as a warning. </p>
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<p>Media now calls the DAO report a “line in the sand.” “The SEC has consistently taken legal action against any ICO issuer post-DAO report if they have been deemed as issuing unregistered securities or other acts of fraud.” But no one knew that then. </p>
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<p>But what if ICOBox had sold its tokens six-month earlier? The ICO advent clearly flummoxed the commission. And its response: appointing career bureaucrat “<a href="https://www.thecrowdfundinglawyers.com/amy-winehouse-to-valerie-szczepanik-come-on-over/">NPC Valerie</a>” Szczepanik Crypto Czar and <a href="https://www.thecrowdfundinglawyers.com/the-sec-mobilizes-for-war/">flooding issuers with subpoenas</a> in early 2018 seems reactive and benighted. And for all the amateurishness, ICOBox doesn’t look like an outright fraud where the SEC should focus. Since August 2017, it reportedly helped 30 token issuers raise over $650 million. </p>
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<p>Unfortunately, the SEC’s policy-by-enforcement harmed the economy and prompted grousing about uneven prosecution and sparse direction. And latent corrective attempts only mucked it up more. For instance, the commission’s long-awaited <a href="https://www.thecrowdfundinglawyers.com/amy-winehouse-to-valerie-szczepanik-come-on-over/">token “guidance”</a> released in April and signed by ‘<a href="https://www.thecrowdfundinglawyers.com/amy-winehouse-to-valerie-szczepanik-come-on-over/">NPC Valerie</a>’ and ‘Bill the Butcher’ Hinman was lamentable. Indeed, it took six months, likely cost the American taxpayer upwards of a quarter-million dollars and clarified nothing. And everyone from <a href="https://www.thecrowdfundinglawyers.com/crypto-mom-to-npc-valerie-get-a-job/">Commissioners</a> to securities lawyers to media lampooned it.&nbsp; </p>
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<div class="wp-block-image"><figure class="aligncenter is-resized"><img src="https://www.thecrowdfundinglawyers.com/wp-content/uploads/2019/09/Amy-Winehouse-Its-true.gif" alt="" class="wp-image-3850" width="468" height="259"/></figure></div>
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<h2 style="text-align: center;"><strong>ICOBox’s SEC trouble should guide future issuers, activists, and investors</strong></h2>
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<p>Token issuers should learn from ICOBox’s missteps to avoid
rescissions, lawsuits, and even criminal charges:</p>
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<ul><li>The law is fluid, play by      the rules. This means hiring experienced counsel willing to sign opinions.      Views from issuers that no legal obligations exist mean nothing. </li><li>Better rules come through advocacy.      As inept as the government is, it’s the only arbiter. Both Congress and      the SEC have input paths. The SEC <a href="https://www.sec.gov/news/press-release/2019-97">sought public comment</a> in its current reconciliation      of private exemptions. The president appoints commissioners and good ones      like Hester Peirce aka <a href="https://www.thecrowdfundinglawyers.com/crypto-mom-to-npc-valerie-get-a-job/">Crypto      Mom</a> move the needle. Finally, some lawmakers see the problems. Reps<strong>. </strong>Warren      Davidson (R-OH) and Darren Soto (D-FL) have sponsored the <a href="https://www.thecrowdfundinglawyers.com/congress-tries-to-bring-clarity-to-crypto-markets/">Token      Taxonomy Act</a> and the JOBS Act 3.0 passed last Congress although it’s now      stalled. Packed rooms in hearings like one this week pressure Congress.  </li></ul>
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<p>Still, the <a href="https://www.thecrowdfundinglawyers.com/how-token-rewards-will-kill-social-media/">token future is bright</a>. Distracted lawmakers, inept regulators, sleazy issuers, and stulted FOMO investors won’t stop it. But technology won’t halt buck-seeking con men or turf-protecting governments guarding control over the populace and economy. Buyer should beware and those interested in the <a href="https://www.thecrowdfundinglawyers.com/its-happening-the-blockstack-reg-a-token-sale-and-a-new-internet/">token economy</a> should get involved.</p>
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<div class="wp-block-image"><figure class="aligncenter is-resized"><img src="https://www.thecrowdfundinglawyers.com/wp-content/uploads/2019/06/do-it.gif" alt="" class="wp-image-980" width="329" height="326"/></figure></div>
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<p>By <a href="https://twitter.com/thecrowdfundlaw">Jossey PLLC</a>
via <a href="http://www.thecrowdfundinglawyers.com">www.thecrowdfundinglawyers.com</a>
</p>
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