In December of 2017, the Securities and Exchange Commissionissued an alert about initial coin offerings. The SEC noted that not a single promoter of an initial coin offering had filed the necessary securities registration paperworkwith the Commission. Yet many ICOs look and behave like securities even if they go by new names or employ complicated technology. And many ICOs meet the legal definition of a security.
An ICO might claim that its token is not a security at all, but ”utility token” that provide investors with current or future access to a product or service. However, as the SEC has recognized, “merely calling a token a ‘utility’ token or structuring it to provide some utility does not prevent the token from being a security.”
Under securities laws, a promoter’s sale of a security that has not been registered with the SEC and does not qualify for exemption from registration confers legal rights on investors. One of those rights is the right of rescission. To put it simply, an investor who bought a security from a promoter who ignored registration requirements has a right to the return of his investment.
