Even as the number of initial coin offerings (ICOs) and amounts invested in them have dropped over the past year, members of the U.S. House of Representatives have found it important enough to classify token offerings distinctly from securities and outside the purview of the Securities and Exchange Commission (SEC).
Ohio Rep. Warren Davidson, along with Florida Rep. Darren Soto, filed H.R. 7356, the proposed Token Taxonomy Act, that they hope will allow businesses to function without being burdened with additional requirements.
Among the bill’s provisions is an amendment to the 1933 Securities Act, that will explicitly exclude a “digital token” from the definition of a security.
Listed among exemptions to SEC control will be transactions involving the development, offering, or sale of a “digital unit” if it is shown to be a digital token. If the Commission is able to show such digital unit to be a security, however, an entity with an ICO will have 90 days to inform the public on this, cease sales, and refund investors.
The bill is meant to clarify a 1946 court ruling that provides the ‘Howey Test’ as means of determining what a security is, which Brooklyn Judge Raymond Dearie invoked last September in stating that ICOs involve securities.
Limiting the SEC’s functions, Davidson said, will free up the regulator “to perform its vital and much needed consumer protection duties of enforcement on those who have engaged in securities fraud by making false claims or simply attempting to engage in regulatory arbitrage to circumvent securities law.”
Although not specifying how companies with ICOs would be regulated in lieu of the SEC, the Ohio lawmaker said, “there will be other regulatory initiatives at some point, but this legislation is an essential first step to keeping this market alive in the United States.”
Co-author Soto, of the Democratic Party, said that with the bill now filed, they were open to comments regarding the role the Federal Trade Commission (FTC) and Commodity Futures Trading Commission (CFTC), which considers cryptocurrencies as commodities, might play in regulating ICOs.
The Republican Davidson has also filed a bill to allow the Secretary of Treasury to accept public donations to fund a U.S.-Mexico border wall, an advocacy on which President Donald Trump ran as a candidate in 2016. Davidson has also suggested that such donations be in the form of ‘wall coins’ powered by blockchain.
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