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

Requirements for Raising Money through an ICO in Washington

If you are planning to raise money through an initial coin offering (ICO) in Washington, you must comply with the securities laws. The Securities Division of the Washington State Department of Financial Institutions has received many inquiries regarding ICOs and token sales [2].

The SEC has cautioned market participants against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions. Engaging in the business of selling securities generally requires a license, and excessive touting in thinly traded and volatile markets can be an indicator of “scalping,” “pump and dump” and other manipulations and frauds [1].

It is possible to conduct an offer and sales of securities, including an ICO, without triggering the SEC’s registration requirements. For example, just as with a Regulation D exempt offering to raise capital for the manufacturing of a physical product, an ICO that is a security can be structured so that it qualifies for an applicable exemption from the registration requirements [1].

Therefore, to raise money through an ICO in Washington, you must ensure that your ICO complies with the securities laws and qualifies for an applicable exemption from the registration requirements.

Relevant Cases

The SEC has taken enforcement actions against ICOs that were conducted in violation of the securities laws. For instance, the SEC filed a complaint against Dropil, Inc. and its three founders for allegedly conducting a fraudulent initial coin offering of unregistered digital asset securities raising money from thousands of investors [3].

The SEC also charged professional boxer Floyd Mayweather Jr. and music producer Khaled Khaled, known as DJ Khaled, for failing to disclose payments they received for promoting investments in Initial Coin Offerings (ICOs) [5].

Therefore, it is important to ensure that your ICO complies with the securities laws to avoid enforcement actions by the SEC.

Conclusion

To raise money through an ICO in Washington, you must comply with the securities laws and ensure that your ICO qualifies for an applicable exemption from the registration requirements. The SEC has taken enforcement actions against ICOs that were conducted in violation of the securities laws, so it is important to ensure compliance to avoid enforcement actions.

Source(s):
Jurisdiction

Washington