Business 7 January 2019

Paul How

Bill seeks to promote ICOs in Colorado

A bill has been filed in the Colorado General Assembly that would limit initial coin offerings’ (ICOs’) coverage by securities regulations.

State Senate Bill 19-023, the proposed ‘Colorado Digital Token Act,’ whose sponsors include state senators Jack Tate, Stephen Fenberg, and Rep. Tracy Kraft-Tharp, would provide limited exemptions from requirements regarding securities registration and sales licensing for those who deal with digital tokens.

“The costs and complexities of state securities registration can outweigh the benefits to Colorado businesses using cryptoeconomic systems that seek to raise growth capital and create new decentralized internet platforms and applications by offering the sale or transfer of digital tokens that have a primarily consumptive purpose,” the bill read.

The measure aims to encourage businesses to adopt cryptocurrencies in growing their capital, “thereby promoting the formation and growth of local companies and the accompanying job creation and helping make Colorado a hub for companies that are building new forms of decentralized Web 3.0 platforms and applications.”

Under the bill, issuers of digital tokens must still file for exemption with the state securities commissioner. To be eligible for exemption, the token must have a primary purpose of consumption, and not be marketed as being for speculation or investment.

Such consumptive purpose must be available within 180 days of the token sale. In addition, the buyer of the token is barred from reselling or transferring ownership of it until the consumptive purpose is made available.

A previous proposal to exempt cryptocurrencies from the state’s ‘Money Transmitters Act’ had failed to pass on third reading at the state Senate. The bill, sponsored by state senators Tim Neville, Dan Pabon, and Rep. Kevin Van Winkle would have exempted from securities requirements those tokens that are “usable,” or with consumptive purpose, within 60 days of their sale.

Colorado has actively stopped operations of numerous companies with ICOs, mainly for not properly registering. Some companies have been issued cease-and-desist orders due to alleged fraud or misleading investors with promises of high returns.

The state’s Division of Securities, like many other agencies, has participated and cooperated in ‘Operation Cryptosweep,’ an effort among North American governments to investigate fishy ICOs.

At the federal level, a bill has been filed by Ohio Rep. Warren Davidson and Florida Rep. Darren Soto that would keep ICOs outside the scope of the U.S. Securities and Exchange Commission.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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