According to Nicolas Morgan, a former lawyer for the U.S. government agency tasked with regulating the securities industry, the SEC is likely to roll out a sort of “assembly line” of enforcement actions against the nascent industry in the coming years.
While the SEC has issued guidance to the ICO industry, recently laying out why it classified tokens issued by The DAO (a now-defunct ethereum smart contract that sold its token to investors) as securities, the agency has yet to announce formal rules.
In response, the industry has moved in a different direction. Some, such as Overstock subsidiary tZERO, are deciding to get regulated, while others have moved to create utility for their tokens, thereby establishing it as a resource necessary for software products.
But according to Morgan, and others in the industry, the ever-expanding language and group of terms and techniques the industry uses could still expose entrepreneurs to a time-consuming SEC investigation and litigation.
“You might be right that your ICO is not a security, and some judge, at the end of the day, may agree with you, but is it worth the expense and distraction to get that answer from a judge?” he told CoinDesk, adding:
“It’s probably a better course of action if you’re anywhere close to being a security, to just assume that it is and go forward with that presumption in mind.”
Recently speaking at the ICO Forward Summit in New York City, Morgan, who served about seven years in the SEC’s enforcement division, spoke to CoinDesk about what to watch for in terms of SEC enforcement in the coming years.
This interview has been edited and condensed…