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Can I raise money through an initial coin offering (ICO) without violating securities laws in Michigan? What are the requirements?

Can I raise money through an initial coin offering (ICO) without violating securities laws in Michigan? What are the requirements?

Based on the documents provided, it is important to note that the SEC has taken enforcement actions against companies that conducted fraudulent initial coin offerings (ICOs) of unregistered digital asset securities [1][3]. Therefore, it is crucial to comply with federal securities laws when conducting an ICO.

In Michigan, an entity can issue virtual coins through an ICO without having to comply with the registration requirements of securities laws. However, it is important to note that if the virtual coins are considered securities, then the entity must comply with federal securities laws [5].

To determine whether the virtual coins are considered securities, the entity must analyze the facts and circumstances of the ICO using the Howey test. The Howey test is a four-pronged test that determines whether a transaction involves an investment contract, which is a type of security [2]. The four prongs of the Howey test are:

  1. The investment of money
  2. In a common enterprise
  3. With an expectation of profits
  4. Solely from the efforts of others

If the virtual coins meet the criteria of the Howey test, then they are considered securities and the entity must comply with federal securities laws, including registration requirements [2].

Therefore, to raise money through an ICO without violating securities laws in Michigan, the entity must analyze the facts and circumstances of the ICO using the Howey test to determine whether the virtual coins are considered securities. If the virtual coins are considered securities, then the entity must comply with federal securities laws, including registration requirements.

Source(s):
Jurisdiction

Michigan