Semi-Public Offerings? Pushing the Boundaries of Securities Law

Abstract

Securities law traditionally only permits corporations that have registered with the Securities and Exchange Commission (“SEC”) and completed an initial public offering (IPO) to sell equity to the general public. The initial coin offering (ICO) is a new kind of fundraising tool private blockchain-based companies have used over the past several years to raise billions of dollars, circumventing registration with the SEC and the public offering process altogether. But U.S. ICOs have been struggling to avoid the SEC’s assertion of jurisdiction over their offerings. The purpose of this Essay is to use ICOs as the launching point for a thought experiment about how securities law might harness technology—here blockchain technology—in service of lowering the cost of capital-raising from the general public while continuing to serve the underlying goals of U.S. securities law. Such a mechanism would do more than facilitate economic growth—it also has the potential to distribute investment gains more broadly by permitting the general public to access investments in private companies that have until now been the exclusive preserve of the rich.

Keywords: securities, Securities Exchange Commission, SEC, Initial Coin Offerings, cryptocurrency, blockchain, Bitcoin, finance, fundraising, corporate law, Ethereum, MasterCoin, Decentralized Autonomous Organization, crypto tokens, utility token, Securities Exchange Act, initial public offering

JEL Classification: K22, M48, O16