Navigating ICOs: Securities Law Implications for ICOS in 2025

examples of digital assets

Initial Coin Offerings (ICOs) have become a prominent method for blockchain-based ventures to raise capital. However, their legality under federal securities laws is often debated. The U.S. Securities and Exchange Commission (SEC) evaluates ICOs using the Howey test, which determines whether a transaction qualifies as an investment contract—and thus a security—requiring registration or exemption.

Understanding the Howey Test

The Howey test, stemming from the Supreme Court’s decision in SEC v. W. J. Howey Co., evaluates whether:
1. There is an investment of money,
2. In a common enterprise,
3. With an expectation of profits derived primarily from the efforts of others.

If an ICO meets these criteria, it is likely considered a security. This test has been central to several recent cases, with courts consistently upholding its application to digital assets.

Recent Cases and Their Implications

 1. SEC v. Balina

The court ruled that the SPRK token qualified as a security under the Howey test, emphasizing the issuer’s promotion of profit expectations to investors. The case also highlighted the importance of compliance with the Securities Act’s anti-fraud provisions.

 2. Balestra v. Atbcoin LLC

The ATB Coin was deemed an investment contract, reinforcing that digital tokens offered in ICOs are subject to securities law when sold with profit expectations tied to the issuer’s efforts.

3. SEC v. NAC Foundation, LLC

Tokens issued during NAC Foundation’s ICO were deemed securities, with the court focusing on the centralized efforts to increase their value, a hallmark of the Howey test.

Other notable cases, including SEC v. Grybniak and Rensel v. Centra Tech, Inc., demonstrate the SEC’s aggressive stance in enforcing securities laws against ICOs that fail to register offerings or mislead investors.

Lessons for Issuers

Issuers must assess whether their token offerings meet the Howey test criteria. A token classified as a security requires:
– Filing a registration statement with the SEC or qualifying for an exemption,
– Transparent disclosures to investors,
– Compliance with anti-fraud provisions under the Securities Act.

Anticipated Regulatory Changes in 2025

The regulatory landscape for ICOs and digital assets is poised for significant shifts in 2025:

  • Leadership Changes at the SEC: President-elect Donald Trump has nominated Paul Atkins, a known crypto advocate, to chair the SEC. Atkins is expected to adopt a more lenient approach toward digital assets, potentially reversing the stringent policies of the previous administration.
  • Potential for Increased Crypto-Friendly Policies: The new administration aims to position the U.S. as a “bitcoin superpower,” which could lead to a more accommodating regulatory environment for ICOs and other crypto-related activities.
  • Focus on Stablecoin Regulation: Industry leaders anticipate that stablecoin regulations will be a priority, providing clearer guidelines for issuers and fostering greater confidence among investors.

Legal Considerations for ICO Launches in 2025

The successful launch of an Initial Coin Offering (ICO) involves navigating a complex regulatory landscape, as shown in the outlined launch timeline and legal considerations. Engaging outside counsel early in the process is critical for ensuring that the legal structuring of the token offering complies with applicable securities and anti-fraud laws. ICO projects must address several key legal checkpoints to mitigate risks and align with evolving regulations.

U.S. Federal Securities Law and General Partnership Risks

For offerings targeting U.S. investors, determining whether the token qualifies as a security under federal securities laws remains paramount. Projects must evaluate whether the ICO risks being classified as an unregistered securities offering under the Howey test. Additionally, general partnership risks arise if token holders inadvertently form a general partnership, potentially exposing them to joint and several liability. This highlights the importance of designing a robust legal structure that mitigates liabilities while ensuring compliance.

International Compliance: VASP Regulations and AML Concerns

For entities incorporated in jurisdictions like the Cayman Islands, Virtual Asset Service Provider (VASP) compliance standards and anti-money laundering (AML) obligations are key considerations. These require ICO issuers to structure offerings to meet VASP regulatory frameworks while implementing strict AML protocols to prevent transactions involving sanctioned entities. This international regulatory alignment is critical as regulators worldwide increase scrutiny on virtual asset activities.

The detailed timeline and jurisdiction-specific risks underscore the importance of collaborative engagement with both U.S. and international legal counsel. A proactive legal approach in addressing these issues not only ensures compliance but also enhances the ICO’s credibility in the eyes of regulators and investors alike.

Implications for ICO Issuers and Investors

Given these developments, issuers and investors should:

  • Stay Informed: Monitor regulatory changes and leadership shifts within the SEC to understand their potential impact on ICOs.
  • Seek Legal Counsel: Engage with legal experts to navigate the evolving regulatory environment and ensure compliance with securities laws.
  • Evaluate Token Offerings: Assess whether token offerings meet the criteria of the Howey test to determine if they qualify as securities.

By proactively addressing these considerations, stakeholders can better navigate the complexities of ICOs in the changing regulatory landscape of 2025.

Legal Strategies for ICOs: Securities Law and Structuring

A well-structured Initial Coin Offering (ICO) must consider both arguments for token classification and exemption strategies to navigate securities laws effectively. In 2025, issuers must increasingly balance innovative token models with legal frameworks to avoid SEC scrutiny and achieve regulatory compliance.

The Belt and Suspenders Approach to Securities Law Compliance

ICO projects must proactively address the potential classification of their tokens as securities. The “Belt and Suspenders” strategy is an effective dual approach:

  1. The Belt: Arguments for Why Tokens Are Not Securities
    • Sufficient Decentralization: Demonstrating that no central authority controls the token’s functionality or value is critical. Tokens operating on a sufficiently decentralized network, like Ethereum, are less likely to be classified as securities.
    • Utility or Consumption: If a token serves a consumptive purpose (e.g., accessing a platform service) rather than investment, it may evade classification under the Howey test.
  2. The Suspenders: Leveraging Available Exemptions from Registration
    • Reg D: For U.S. purchasers, Regulation D allows exemptions for private placements sold exclusively to accredited investors.
    • Reg S: For international participants, Regulation S facilitates compliance by exempting offshore offerings.
    • Rule 701: For team members and advisors, Rule 701 provides an exemption for compensatory token grants, reducing the risk of classification as a public offering.

Legal Structuring Through Foundations

The choice of legal structure significantly impacts the ICO’s success and compliance. Forming a foundation in jurisdictions like the Cayman Islands offers several advantages:

  • Ownerless Structure: Foundations lack shareholders, providing a neutral governance framework ideal for decentralized projects.
  • Legal Personhood: The foundation operates as a distinct legal entity, shielding founders from personal liability.
  • Flexibility: These structures accommodate various operational and developmental needs, including token issuance and ecosystem support.

Key structural components include:

  • Foundation Council: Governs the foundation and ensures compliance with its constitutional documents.
  • Constitutional Documents: Define the foundation’s objectives and governance rules.
  • DevCo Relationship Framework: Outlines interactions between the foundation and the development company, ensuring clear accountability.

Post-Formation Steps and Timeline Considerations

After forming the foundation, the immediate focus should shift to:

  • Operationalization: Establishing operational procedures for managing token economics and governance.
  • Contracting Framework: Ensuring all third-party agreements are legally robust.
  • Token Issuance Preparations: Addressing technical and compliance issues for launching tokens.

Timeline considerations, such as third-party reviews and insider token distributions, must align with the project’s jurisdictional requirements and strategic goals.

1. The Launch Timeline: An Overview

Every ICO begins with careful planning and extends well beyond the launch date. The roadmap typically includes the following milestones:

  • Engage Legal Counsel: Early engagement with specialized outside counsel is crucial to address jurisdictional requirements and avoid missteps in regulatory compliance.
  • Legal Structuring: Establish clear legal frameworks, addressing securities regulations and governance.
  • Token Structuring: Define the utility or function of your tokens, ensuring compliance with securities laws such as the Howey test.
  • Launch Execution: Prepare for a smooth token issuance by ensuring operational readiness and stakeholder alignment.
  • Post-Launch Management: Effective post-launch strategies, such as tracking systems and reporting automation, are essential for ongoing compliance and stakeholder trust.

2. Navigating U.S. Federal and Cayman Laws

U.S. Securities Law Considerations

Under U.S. federal law, the SEC closely scrutinizes whether token sales constitute securities offerings. The Howey test determines whether your token is classified as a security by examining factors like decentralization and expected profits derived from the efforts of others.

  • “The Belt” Strategy: Position your token as non-security by ensuring sufficient decentralization and focusing on utility or consumption.
  • “The Suspenders” Strategy: Consider exemptions like Reg D (for U.S. purchasers), Reg S (for non-U.S. purchasers), or Rule 701 (for team compensation).

Cayman Islands Compliance

If your token launch involves the Cayman Islands, compliance with Virtual Asset Service Provider (VASP) regulations is essential.

  • Key Compliance Areas: Ensure that the offering aligns with applicable VASP standards and Anti-Money Laundering (AML) protocols to avoid exposure to regulatory sanctions.
  • Foundation Structuring: A Cayman foundation can provide an ownerless structure with legal personhood and operational flexibility, supported by constitutional documents and a clear DevCo relationship framework.

3. Post-Launch Management: Critical To-Dos and Pitfalls

Launching your token is just the beginning. Effective post-launch management ensures smooth operations and builds stakeholder trust.

Critical Post-Launch Steps

  • Establish a robust tracking system/dashboard to maintain transparency and accuracy in token circulation.
  • Integrate token payroll systems to handle employee and advisor compensation seamlessly.
  • Develop staking, governance, and trading plans to foster engagement and utility.
  • Optimize batch token distribution processes and automate reporting to streamline operations.

Common Mistakes to Avoid

  • Assuming that traditional payroll or accounting providers can handle token-specific requirements.
  • Overlooking jurisdiction-specific compliance obligations.
  • Failing to plan liquidity or communicate effectively with stakeholders.

4. Accelerating Your Launch: Pro Tips for Efficiency

  • Start Early: Effective planning mitigates last-minute issues and allows you to capitalize on fleeting market opportunities.
  • Leverage Expertise: Engage partners and advisors with proven track records to avoid costly missteps.
  • Think Long-Term: Build frameworks that ensure scalability and compliance well into the future.

Navigating Compliance in 2025

The evolving regulatory landscape demands that ICO projects adopt comprehensive legal strategies. By combining robust structuring and compliance frameworks with exemptions under securities law, projects can mitigate risks and position themselves for long-term success.

Brief Conclusion

The SEC’s consistent application of the Howey test to ICOs underscores the need for issuers to exercise caution. Engaging experienced securities counsel early in the process can help mitigate legal risks and ensure compliance with evolving regulations. As the regulatory environment continues to evolve, understanding these rulings and their implications is crucial for ICO participants.

By proactively addressing these challenges, issuers and investors can navigate the complexities of ICOs with greater confidence. If you have any questions or would like help initiating an ICO, please do not hesitate to contact our dedicated team of lawyers and legal professionals at Montague Law. John Montague has over 10 years experience working in the digital assets space and would be happy to discuss the opportunities and legal risks associated with a token launch or ICO.

Relevant Cases for ICOS:

entertainment law

  • U.S. Sec. & Exch. Comm’n v. Balina, 1:22-CV-00950-DAE (W.D. Tex. May. 22, 2024)

    This case is relevant to the research request because it discusses whether a particular type of cryptocurrency token (SPRK) qualifies as a security under the Howey test. The court’s analysis of the three prongs of the Howey test, as well as its discussion of Section 17(b) of the Securities Act, may be helpful in understanding how courts are approaching the regulation of initial coin offerings (ICOs). However, without additional research, it is difficult to assess whether this case is representative of the current state of the law or whether it has been superseded by subsequent developments.

    “On his Patreon, Balina stated that he has “come up with a methodology of evaluating and grading” Initial Coin Offerings (“ICOs”) using data and prior success. (App. 571.) By doing so, Balina was “trying to find undervalued ICOs that have the best chance of making money.” (Id.)”

    “During the Event, Balina introduced himself as a “blockchain angel investor . . . trying to find the next big ICO[,]” and held a cryptocurrency pitch contest for ICO investment opportunities. (App. 351). Throughout the Event, Sparkster’s CEO, Sajjad Daya, pitched the Sparkster platform and the SPRK Token. (App. 354.)”

    “Daya stated that this product was “finished” and “blockchain integrated.” (Id.)”

  • Hardin v. TRON Found., 20-CV-2804 (VSB) (S.D.N.Y. Oct. 23, 2024)

    This case is relevant to the research request because it discusses an initial coin offering (ICO) and addresses whether the digital asset at issue is a security under the Securities Act of 1933. However, the case does not directly answer the research request, as it focuses on a motion to dismiss rather than the merits of whether the digital asset is a security.

    “Before me is Defendants TRON Foundation’s and Justin Sun’s motion to dismiss Plaintiffs’ Amended Class Action Complaint (“Amended Complaint”) under Federal Rule of Civil Procedure 12(b)(1), 12(b)(2), and 12(b)(6), or in the alternative, pursuant to the doctrine of forum non conveniens. (Doc. 55.) For the following reasons, Defendants’ motion to dismiss is GRANTED in part and DENIED in part.”

    “A digital token is a type of digital asset that exists on a “blockchain,” which is a decentralized digital ledger that records transactions. (Id. ¶ 2.) These assets are sometimes referred to as “crypto-assets.” (Id.) Various types of crypto-assets can reside on blockchains, including crypto-assets such as Bitcoin and Ethereum, which are decentralized digital commodities. (Id.) “Other tokens are more speculative, are referred to as ‘security tokens,’ and like a traditional security, essentially represent one’s investment in a project that is to be undertaken with the funds raised through the sale of the tokens.” (Id. ¶ 4.)”

    “The [coins] are issued and distributed on a “blockchain” or cryptographically-secured ledger. [Coins] often are also listed and traded on online platforms, typically called virtual currency exchanges, and they usually trade for other digital assets or fiat currencies.”

  • Balestra v. Atbcoin LLC, 380 F. Supp. 3d 340 (S.D.N.Y. 2019)

    The case of Balestra v. Atbcoin LLC is relevant to the research request because it discusses whether a digital asset offered through an initial coin offering (ICO) qualifies as a “security” under the Securities Act of 1933. The court applies the Howey test to make this determination, which may be useful for understanding how other courts might analyze ICOs. However, the case does not provide a comprehensive overview of the law on this topic, and it is not clear whether it has been cited or followed by other courts.

    “OPINION & ORDER Vernon S. Broderick, United States District Judge Plaintiff Raymond Balestra, individually and on behalf of all others similarly situated, brings this putative class action against Defendants ATBCOIN LLC, Edward Ng, and Herbert W. Hoover, alleging that Defendants violated the Securities Act of 1933 (the “Securities Act” or the “Act”), 15 U.S.C. §§ 77a, et seq., by selling unregistered securities through an initial coin offering of the digital asset ATB Coin. Before me is Defendants’ motion to dismiss Plaintiff’s Complaint for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2), and for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).”

    “The U.S. Securities and Exchange Commission (“SEC”) has defined an “initial coin offering” or “ICO” as [A] recently developed form of fundraising event in which an entity offers participants a unique digital “coin” or “token” in exchange for consideration (most commonly Bitcoin, Ether, or fiat currency). The [coins] are issued and distributed on a “blockchain” or cryptographically-secured ledger. [Coins] often are also listed and traded on online platforms, typically called virtual currency exchanges, and they usually trade for other digital assets or fiat currencies.”

    “Accordingly, I find that Plaintiff’s Complaint plausibly alleges facts demonstrating that the ATB Coin qualifies as an “investment contract” under the Howey test.”

  • ForUsAll, Inc. v. United States Dep’t of Labor, 691 F. Supp. 3d 14 (D.D.C. 2023)

    This case is relevant to the research request in that it discusses the Department of Labor’s guidance on cryptocurrency investments in retirement plans. While the case does not specifically mention ICOS, it does address the broader issue of how the Department of Labor views cryptocurrency investments in general. However, the case does not provide a definitive answer on the matter, as it ultimately holds that the guidance is not final agency action and therefore not subject to judicial review.

    “The statement that the Department will “take appropriate action to protect the interests” also does not indicate that any enforcement action is imminent or inevitable, id., and courts have found that similar warning letters that may lead to enforcement action do not constitute final agency action, see, e.g., Holistic Candlers & Consumers Ass’n v. Food & Drug Admin., 664 F.3d 940, 944 (D.C. Cir. 2012) (finding that warning letters that may lead to enforcement action but would not “inevitably” do so did not represent the consummation of the agency’s decisionmaking process).”

    “While it warns plan fiduciaries that it may be difficult to square offerings in cryptocurrency with their obligations under ERISA, it does not prevent these companies from taking a different view of the matter.”

    “No legal consequences flow from the Release here.”

    “McCarthy, 758 F.3d at 252.”

    “Appalachian Power Co. v. EPA, 208 F.3d 1015, 1023 (D.C. Cir. 2000).”

  • Sec. & Exch. Comm’n v. NAC Found., LLC, 512 F. Supp. 3d 988 (N.D. Cal. 2021)

    This case is relevant to the research request because it discusses the legality of an initial coin offering (ICO) under federal securities law. Specifically, the court applies the Howey test to determine whether the tokens sold in the ICO qualify as “securities” that must be registered with the SEC. However, the case does not address all aspects of ICOs, and it is from a district court, so it may not be as persuasive as a higher court ruling.

    “RICHARD SEEBORG, United States District Judge In successfully raising millions through an “initial coin offering” (“ICO”), the NAC Foundation (a blockchain development company), along with its CEO, Marcus Rowland Andrade (collectively, “defendants”), also raised a few governmental eyebrows. Two enforcement actions followed: a criminal indictment against Andrade for wire fraud and money laundering, and this civil suit, brought by the Securities and Exchange Commission (“SEC”), alleging the fraudulent and unregistered sale of digital securities in violation of the 1933 Securities Act and 1934 Securities Exchange Act.”

    “For the reasons set forth herein, the motion is denied. Into the sometimes uncertain world of cryptocurrency transactions, defendants sought to introduce AML BitCoin: a regulatorily compliant digital asset.”

    “The ICO ran from October 2017 to February 2018, with participants exchanging either fiat currency or other digital assets (e.g. Bitcoin) for ABTC tokens.”

  • U.S. Sec. & Exch. Comm’n v. Grybniak, 20-CV-327(EK)(MMH) (E.D.N.Y. Sep. 24, 2024)

    This case is relevant to the research request because it discusses the application of securities laws to an initial coin offering (ICO). Specifically, the court analyzes whether the ICO at issue violated Section 5 of the Securities Act and whether the defendants made materially false or misleading statements in connection with the ICO. However, without additional context, it is difficult to assess the extent to which this case may be persuasive or binding authority for the research request.

    “Found., Inc. v. Forman, 421 U.S. 837, 852 (1975) (“By profits, the Court has meant either capital appreciation resulting from the development of the initial investment . . . or a participation in earnings resulting from the use of investors’ funds.”). The record in this case establishes horizontal commonality.”

    “Thus, the record demonstrates the existence of a common enterprise. 3. Reasonable Expectation of Profits The third prong of the Howey test asks whether the purchaser of the instrument in question reasonably expects “profits to be derived from the entrepreneurial or managerial efforts of others.” United Hous. Found., Inc. v. Forman, 421 U.S. 837, 852 (1975).”

    “From Opporty’s communications, marketing campaign, and the nature of the ICO, it is clear that the company asked investors to conclude that the tokens would appreciate in value through Opporty’s development of its online platform.”

  • Rensel v. Centra Tech, Inc., 1:17-cv-24500-RNS/JB (S.D. Fla. May. 31, 2022)

    The case of Rensel v. Centra Tech, Inc. is relevant to the research request because it discusses an Initial Coin Offering (“ICO”) and the legal issues that arose from it. Specifically, the case addresses allegations that the defendants violated the Securities Act and the Exchange Act by offering and selling unregistered securities. However, the case does not provide a substantive ruling on these issues because it ultimately resulted in a default judgment against the defendants.

    “I. PROCEDURAL BACKGROUND On December 13, 2017, Plaintiff Jacob Zowie Thomas Rensel (“Rensel”), individually and on behalf of others, filed suit alleging that he was deceived by Defendants Centra Tech, Inc. (“Centra Tech”), Sohrab Sharma (“Sharma”), Raymond Trapani (“Trapani”), Robert Farkas (“Farkas”), and William Hagner (“Hagner”), in connection with Centra Tech’s Initial Coin Offering (“ICO”). ECF No. [1]. Centra Tech claimed to be “the world’s first Debit Card that is designed for use with compatibility on 8+ major cryptocurrencies blockchain assets[, ]” id. ¶ 30, and conducted the ICO to raise capital for further development of the Centra Debit Card and Centra Wallet, id. ¶ 2. During its ICO, Centra Tech offered sales of the Centra Token (“CTR”). Id. Plaintiffs claim that “Defendants raised over $30 million in digital cryptocurrencies by offering and selling unregistered securities in direct violation of the Securities Act.” Id. ¶ 1.”

    “First, as to the claim under the Securities Act (Count I), Plaintiffs argue that liability has been established based on Centra Tech’s “unlawful solicitation, offer and sale of unregistered securities” and “unlawful offering of unregistered securities, in the form of CTR Tokens, for which no exemption from registration was available under the federal securities laws.””

  • Sec. & Exch. Comm’n v. Coinbase, Inc., 23 Civ. 4738 (KPF) (S.D.N.Y. Mar. 27, 2024)

    This case is relevant to the research request because it discusses the regulation of crypto assets, including initial coin offerings (ICOs). However, the case does not specifically address the legal issues surrounding ICOs, and it is not clear from the excerpt whether the court ultimately ruled on any issues that would be directly relevant to the research request.

    “In its macro or broadest sense, the crypto “ecosystem” comprises all of the participants in the industry, and has been defined to include: issuers (that create or “mint” crypto assets), crypto asset service providers such as exchanges (that facilitate the exchange of crypto assets but can also offer lending and investment services), wallet providers (that store crypto assets and can also be the transfer function), validators or miners (that ensure a consistent, honest, and true ledger), underlying technology (the [distributed ledger technology “DLT”] on which crypto assets are deployed), and regulated financial institutions (that might have exposures to crypto assets). Crypto asset service providers are also carrying out multiple activities, for example, facilitating the exchange of crypto assets, storing client’s crypto assets, providing lending and leverage services to the users, offering transfer services, and clearing and settlement for off-chain transactions.”

    “Thus, once a crypto-asset is created, it is typically first offered and sold by its developer to institutional investors in capital-raising events, including so-called “initial coin offerings” or “ICOs.” (Compl. ¶ 51). ICOs are generally executed via a combination of direct placements, initial exchange offerings, and simple agreements for future tokens (“SAFTs”). (See, e.g., id. ¶ 129). In some instances, developers may release a “whitepaper” or other marketing materials describing a project to which the asset relates, the terms of the offering, and any rights associated with the asset. (Id. ¶ 51).”

  • Sec. & Exch. Comm’n v. Almagarby, 92 F.4th 1306 (11th Cir. 2024)

    This case is relevant to the research request because it discusses the definition of a “dealer” under the Exchange Act, and the distinction between dealers and traders. It also addresses the issue of disgorgement and the timeliness of an enforcement action by the SEC. However, the case does not specifically mention ICOS, so additional research may be needed to determine whether the reasoning in this case is directly applicable.

    “Notably, the definition of “dealer” in the Exchange Act contains a carveout commonly called the “trader” exemption. Section 3(a)(5)(B) provides that a “dealer” does not include a person—a trader—who transacts in securities “but not as a part of a regular business.” Id. § 78c(a)(5)(B).”

    “The Commission maintains that Almagarby was a “dealer” under the Exchange Act due to both the kind and the amount of his transaction activity.”

    “The Commission argues that the volume and regularity of Almagarby’s transactions, and the fact that his entire business was predicated on flipping penny stocks, preclude him from qualifying for the trader exemption. We agree. Almagarby engaged in the kind of activity characteristic of securities dealers.”

  • Golubowski v. Robinhood Mkts., 21-cv-09767-EMC (EMC) (N.D. Cal. Jan. 24, 2024)

    This case is somewhat relevant to the research request, as it discusses a company that provides a trading platform for cryptocurrencies. However, the case primarily focuses on allegations of false and misleading statements in the company’s IPO prospectus, rather than on the specifics of how the company facilitates cryptocurrency trading. Additionally, the case is from a district court, so it does not carry as much weight as a higher court decision would.

    “EDWARD M. CHEN UNITED STATES DISTRICT JUDGE ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS DOCKET NO. 97 EDWARD M. CHEN UNITED STATES DISTRICT JUDGE Plaintiffs Amee Sodha and Vinod Sodha (“Plaintiffs”) filed suit against Defendants Robinhood Markets, Inc. (“Robinhood” or “the Company”), certain senior executives and directors of Robinhood (Vladimir Tenev, Jason Warnick, Baiju Bhatt, Jan Hammer, Paula Loop, Jonathan Rubenstein, Scott Sandell, and Robert Zoellick), and the underwriters (Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Barclays Capital Inc., Citigroup Global Markets Inc., Wells Fargo Securities, LLC, Mizuho Securities USA LLC, JMP Securities LLC, KeyBanc Capital Markets Inc., Piper Sandler & Co., Rosenblatt Securities Inc., BMO Capital Markets Corp., BTIG, LLC, Santander Investment Securities Inc., Academy Securities, Inc., Loop Capital Markets LLC, Samuel A. Ramirez & Company, Inc. and Siebert Williams Shank & Co., LLC).”

    “For the following reasons, the Court GRANTS Defendants’ Motion to Dismiss WITHOUT LEAVE TO AMEND. I. FACTUAL AND PROCEDURAL BACKGROUND A. Overview 1.”

  • Carlucci v. Han, 907 F. Supp. 2d 709 (E.D. Va. 2012)

    “Section 10(b) forbids the “use or employ, in connection with the purchase or sale of any security […] [of] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). SEC Rule 10b–5 implements Section 10(b) by making it unlawful: (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b–5.”

    “A plaintiff bringing a Section 10(b) claim “must typically prove: ‘(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation’ (that is, the economic loss must be proximately caused by the misrepresentation or omission).””

    “Section 10(b) requires that a defendant act deceptively in order to fall within the purview of the statute.”

    “Deceptive acts include misstatements, omissions by those with a duty to disclose, manipulative trading practices, and deceptive courses of conduct.”

  • Duncan v. Vantage Corp., C.A. No. 18-288 (MN) (D. Del. Mar. 26, 2019)

    “See e.g. D.I. 24 at 6 Finally, with respect to Plaintiff’s assertion that Finegold “is a control person with respect to Askew” (D.I. 24 at 6), “[t]o state a claim for control person liability under Section 15 of the Securities Act, the plaintiff must allege (1) a primary violation of the federal securities laws by a controlled person or entity; (2) control of the primary violator by the defendant; and (3) that the controlling person was in some meaningful way a culpable participant in the primary violation.” Dutton v. Harris Stratex Networks, Inc., 270 F.R.D. 171, 178 (D. Del. 2010) (citing In re Reliance Sec. Litig., 91 F.Supp.2d 706, 731 (D. Del. 2000)). In Dutton, the district court found that the first element is sufficiently met with “[a]dequate pleading of a primary Section 11 or 12 violation,” while the second and third elements are met by factual allegations supporting “a reasonable inference that defendants had the potential to influence and direct the activities of the primary violator.””

    “As discussed infra, the Court finds that the Plaintiff has failed to sufficiently plead underlying securities violations under Section 12 but has sufficiently pleaded violations under Section 10(b).”

    “The Court thus agrees that the Amended Complaint fails to state a claim as to Finegold and the claims against him are dismissed.”

  • Sec. & Exch. Comm’n v. Blockvest, LLC, Case No.: 18CV2287-GPB(BLM) (S.D. Cal. Feb. 14, 2019)

    “The deposits are from digital wallet addresses and individuals that are not easily identifiable, but Ringgold believes that only affiliated persons would have deposited Bitcoin or Ethereum on the exchange and received nothing without complaining. (Id.) The Blockvest Exchange platform was never open for business. (Id.) At his deposition, Ringgold testified he knows the identity of the 32 investors. (Dkt.”

  • United States Sec. & Exch. Comm’n v. Cutting, 2:21-cv-00103-BLW (D. Idaho Sep. 28, 2022)

    “Altcoin issuers commonly begin sales of altcoins in “initial coin offerings” or “ICOs” in a process that resembles an informal initial public offering of unregistered securities. More recently, altcoin offerings called “initial exchange offerings” or “IEOs” have moved to online trading platforms purporting to be legitimate securities exchanges engaging in offerings for companies raising capital. Collectively, ICOs and IEOs are referred to as “altcoin offerings.””

    “In the past several years, the SEC has aggressively ramped up enforcement activity against illegal altcoin offerings, as well as other types of fraud associated with altcoin offerings, such as soliciting bogus investment fees from investors or conducting old-fashioned Ponzi schemes dressed up as novel, “cuttingedge” investment opportunities. See, e.g, Statement on Potentially Unlawful Online Platforms for Trading Digital Assets, SECURITIES AND EXCHANGE COMMISSION (Mar. 7, 2018) https://www.sec.gov/news/public-statement/enforcement-tm-statementpotentially- unlawful-online-platforms-trading; Statement on Cryptocurrencies and Initial Coin Offerings, SECURITIES AND EXCHANGE COMMISSION (Dec. 11, 2017), https://www.sec.gov/news/publicstatement/ statement-clayton-2017-12-11; Investor Bulletin: Initial Coin Offerings, SECURITIES AND EXCHANGE COMMISSION (Dec. 11, 2017) https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings; Investor Alert: Bitcoin and Other Virtual Currency-Related Investments, SECURITIES AND EXCHANGE COMMISSION (May 7, 2014), https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investoralerts/ investor-39 B. The SEC Investigation and Overview of Allegations In October 2020, the SEC began investigating Cutting and CTM for securities fraud violations associated with Cutting’s cryptocurrency investment fund.”

  • In re Xunlei Ltd. Sec. Litig., 18 Civ. 467 (PAC) (S.D.N.Y. Sep. 10, 2019)

    “Xunlei also structured the Rewards Program in a manner that mimicked features often associated with an Initial Coin Offering (“ICO”). (Id. ¶¶ 30-32.) The Company “created a sense of urgency by making the cost cheaper—and the economic upside greater—for OneCoin/LinkToken’s earliest adopters.” (Id. ¶ 32.) Xunlei incorporated a “halving” feature into OneCoin so that the daily number of OneCoin issued to all miners on the OneThing Cloud network would be cut in half each year. (Id.)”

  • OWNER-OPERATOR INDEPENDENT DRIVERS ASSOC. v. C. R. ENG, Case No. 2:02 CV 950 TS (D. Utah May. 21, 2009)

    “The parties to a lawful contract may agree upon any rate of interest for the loan or forbearance of any money, goods, or chose in action that is the subject of their contract. (2) Unless parties to a lawful contract specify a different rate of interest, the legal rate of interest for the loan or forbearance of any money, goods, or chose in action shall be 10% per annum. Utah Code Ann. § 15-1-1(2) (Supp. 1990).”

    “This is the only instance of the use of the word “undersigned” the magistrate judge has found in the ICOA.”

    “The ICOA concludes that “YOU and WE are both bound by this Agreement” and “YOU and WE have executed this Agreement. . . .””

    “Because each ICOA does have a contractual rate, the Utah statutory rate does not apply at all.”

  • Sec. & Exch. Comm’n v. Longfin Corp., 316 F. Supp. 3d 743 (S.D.N.Y. 2018)

    “OPINION AND ORDER DENISE COTE, United States District Judge The Securities and Exchange Commission (“SEC”) has shown that it is likely to succeed on the merits of its claims that defendants [REDACTED], Suresh Tammineedi, and Dorababu Penumarthi sold unregistered securities in violation of Section 5 of the Securities Act of 1933 (“Securities Act”) between December 15, 2017 and March 28, 2018. The SEC has shown that it is likely to prove at trial that these defendants participated in an unregistered, illegal public offering of the stock of Longfin Corp. (“Longfin”).”

    “Longfin first received SEC approval to publicly offer its shares on June 16, 2017, and engaged in a public offering after that date.”

    “Title IV of the JOBS Act directed the SEC to create an exemption from the registration requirements of Section 5 of the Securities Act for companies to publicly sell shares in an offering of securities in an amount up to $50 million with fewer requirements than those applicable generally to companies undertaking an IPO. 126 Stat. 306, 324 (codified at 15 U.S.C. § 77c ).”

    “In addition, an offering statement must be reviewed by the SEC, and “qualified” by their staff.”

Relevant Statutes for ICOS:

Section 77d – Exempted transactions, 15 U.S.C. § 77d
  • “(a) In general The provisions of section 77e of this title shall not apply to- (1) transactions by any person other than an issuer, underwriter, or dealer. (2) transactions by an issuer not involving any public offering. (3) transactions by a dealer (including an underwriter no longer acting as an underwriter in respect of the security involved in such transaction), except- (A) transactions taking place prior to the expiration of forty days after the first date upon which the security was bona fide offered to the public by the issuer or by or through an underwriter, (B) transactions in a security as to which a registration statement has been filed taking place prior to the expiration of forty days after the effective date of such registration statement or prior to the expiration of forty days after the first date upon which the security was bona fide offered to the public by the issuer or by or through an underwriter after such effective date, whichever is later (excluding in the computation of such forty days any time during which a stop order issued under section 77h of this title is in effect as to the security), or such shorter period as the Commission may specify by rules and regulations or order, and (C) transactions as to securities constituting the whole or a part of an unsold allotment to or subscription by such dealer as a participant in the distribution of such securities by the issuer or by or through an underwriter. With respect to transactions referred to in clause (B), if securities of the issuer have not previously been sold pursuant to an earlier effective registration statement the applicable period, instead of forty days, shall be ninety days, or such shorter period as the Commission may specify by rules and regulations or order. (4) brokers’ transactions executed upon customers’ orders on any exchange or in the over-the-counter market but not the solicitation of such orders. (5) transactions involving offers or sales by an issuer solely to one or more accredited investors, if the aggregate offering price of an issue of securities offered in reliance on this paragraph does not exceed the amount allowed under section 77c(b)(1) of this title, if there is no advertising or public solicitation in connection with the transaction by the issuer or anyone acting on the issuer’s behalf, and if the issuer files such notice with the Commission as the Commission shall prescribe. (6) transactions involving the offer or sale of securities by an issuer (including all entities controlled by or under common control with the issuer), provided that- (A) the aggregate amount sold to all investors by the issuer, including any amount sold in reliance on the exemption provided under this paragraph during the 12-month period preceding the date of such transaction, is not more than $1,000,000; (B) the aggregate amount sold to any investor by an issuer, including any amount sold in reliance on the exemption provided under this paragraph during the 12-month period preceding the date of such transaction, does not exceed- (i) the greater of $2,000 or 5 percent of the annual income or net worth of such investor, as applicable, if either the annual income or the net worth of the investor is less than $100,000; and (ii) 10 percent of the annual income or net worth of such investor, as applicable, not to exceed a maximum aggregate amount sold of $100,000, if either the annual income or net worth of the investor is equal to or more than $100,000; (C) the transaction is conducted through a broker or funding portal that complies with the requirements of section 77d-1(a) of this title; and (D) the issuer complies with the requirements of section 77d-1(b) of this title. (7) transactions meeting the requirements of subsection (d). (b) Offers and sales exempt under 17 CFR 230.506 Offers and sales exempt under section 230.506 of title 17, Code of Federal Regulations (as revised pursuant to section 201 of the Jumpstart Our Business Startups Act) shall not be deemed public offerings under the Federal securities laws as a result of general advertising or general solicitation.”
  • Section 77e – Prohibitions relating to interstate commerce and the mails, 15 U.S.C. § 77e

    “(a) Sale or delivery after sale of unregistered securities Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly- (1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise; or (2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale. (b) Necessity of prospectus meeting requirements of section 77j of this title It shall be unlawful for any person, directly or indirectly- (1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to carry or transmit any prospectus relating to any security with respect to which a registration statement has been filed under this subchapter, unless such prospectus meets the requirements of section 77j of this title; or (2) to carry or cause to be carried through the mails or in interstate commerce any such security for the purpose of sale or for delivery after sale, unless accompanied or preceded by a prospectus that meets the requirements of subsection (a) of section 77j of this title. (c) Necessity of filing registration statement It shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security, unless a registration statement has been filed as to such security, or while the registration statement is the subject of a refusal order or stop order or (prior to the effective date of the registration statement) any public proceeding or examination under section 77h of this title. (d) Limitation Notwithstanding any other provision of this section, an emerging growth company or any person authorized to act on behalf of an emerging growth company may engage in oral or written communications with potential investors that are qualified institutional buyers or institutions that are accredited investors, as such terms are respectively defined in section 230.144A and section 230.501(a) of title 17, Code of Federal Regulations, or any successor thereto, to determine whether such investors might have an interest in a contemplated securities offering, either prior to or following the date of filing of a registration statement with respect to such securities with the Commission, subject to the requirement of subsection (b)(2). (e) Security-based swaps Notwithstanding the provisions of section 77c or 77d of this title, unless a registration statement meeting the requirements of section 77j(a) of this title is in effect as to a security-based swap, it shall be unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell, offer to buy or purchase or sell a security-based swap to any person who is not an eligible contract participant as defined in section 1a of title 7. 15 U.S.C. § 77e May 27, 1933, ch. 38, title I, §5, 48 Stat. 77; June 6, 1934, ch. 404, title II, §204, 48 Stat. 906; Aug. 10, 1954, ch. 667, title I, §7, 68 Stat. 684; Pub.”

  • Section 77r – Exemption from State regulation of securities offerings, 15 U.S.C. § 77r

    “(a) Scope of exemption Except as otherwise provided in this section, no law, rule, regulation, or order, or other administrative action of any State or any political subdivision thereof- (1) requiring, or with respect to, registration or qualification of securities, or registration or qualification of securities transactions, shall directly or indirectly apply to a security that- (A) is a covered security; or (B) will be a covered security upon completion of the transaction; (2) shall directly or indirectly prohibit, limit, or impose any conditions upon the use of- (A) with respect to a covered security described in subsection (b), any offering document that is prepared by or on behalf of the issuer; or (B) any proxy statement, report to shareholders, or other disclosure document relating to a covered security or the issuer thereof that is required to be and is filed with the Commission or any national securities organization registered under section 78o-3 of this title, except that this subparagraph does not apply to the laws, rules, regulations, or orders, or other administrative actions of the State of incorporation of the issuer; or (3) shall directly or indirectly prohibit, limit, or impose conditions, based on the merits of such offering or issuer, upon the offer or sale of any security described in paragraph (1). (b) Covered securities For purposes of this section, the following are covered securities: (1) Exclusive Federal registration of nationally traded securities A security is a covered security if such security is- (A) a security designated as qualified for trading in the national market system pursuant to section 78k-1(a)(2) of this title that is listed, or authorized for listing, on a national securities exchange (or tier or segment thereof); or (B) a security of the same issuer that is equal in seniority or that is a senior security to a security described in subparagraph (A). (2) Exclusive Federal registration of investment companies A security is a covered security if such security is a security issued by an investment company that is registered, or that has filed a registration statement, under the Investment Company Act of 1940 [15 U.S.C. 80a-1 et seq.]. (3) Sales to qualified purchasers A security is a covered security with respect to the offer or sale of the security to qualified purchasers, as defined by the Commission by rule. In prescribing such rule, the Commission may define the term “qualified purchaser” differently with respect to different categories of securities, consistent with the public interest and the protection of investors. (4) Exemption in connection with certain exempt offerings A security is a covered security with respect to a transaction that is exempt from registration under this subchapter pursuant to- (A) paragraph (1) or (3) of section 77d1 of this title, and the issuer of such security files reports with the Commission pursuant to section 78m or 78o(d) of this title; (B) section 77d(4)1 of this title; (C) section 77d(6)1 of this title; (D) a rule or regulation adopted pursuant to section 77c(b)(2) of this title and such security is- (i) offered or sold on a national securities exchange; or (ii) offered or sold to a qualified purchaser, as defined by the Commission pursuant to paragraph (3) with respect to that purchase or sale; (E) section 77c(a) of this title, other than the offer or sale of a security that is exempt from such registration pursuant to paragraph (4), (10), or (11) of such section, except that a municipal security that is exempt from such registration pursuant to paragraph (2) of such section is not a covered security with respect to the offer or sale of such security in the State in which the issuer of such security is located; (F) Commission rules or regulations issued under section 77d(2)1 of this title, except that this subparagraph does not prohibit a State from imposing notice filing requirements that are substantially similar to those required by rule or regulation under section 77d(2)1 of this title that are in effect on September 1, 1996; or (G) section 77d(a)(7) of this title.”

    “(B) Preservation of fees (i)”

    “Fees not permitted on listed securities Notwithstanding subparagraphs (A), (B), and (C), no filing or fee may be required with respect to any security that is a covered security pursuant to subsection (b)(1), or will be such a covered security upon completion of the transaction, or is a security of the same issuer that is equal in seniority or that is a senior security to a security that is a covered security pursuant to subsection (b)(1). (F)4 Fees not permitted on crowdfunded securities Notwithstanding subparagraphs (A), (B), and (C), no filing or fee may be required with respect to any security that is a covered security pursuant to subsection (b)(4)(B), or will be such a covered security upon completion of the transaction, except for the securities commission (or any agency or office performing like functions) of the State of the principal place of business of the issuer, or any State in which purchasers of 50 percent or greater of the aggregate amount of the issue are residents, provided that for purposes of this subparagraph, the term “State” includes the District of Columbia and the territories of the United States.”

  • Section 78j-3 – Compensation committees, 15 U.S.C. § 78j-3

    “(a) Independence of compensation committees (1) Listing standards The Commission shall, by rule, direct the national securities exchanges and national securities associations to prohibit the listing of any equity security of an issuer, other than an issuer that is a controlled company, limited partnership, company in bankruptcy proceedings, open-ended management investment company that is registered under the Investment Company Act of 1940 [15 U.S.C. 80a-1 et seq.], or a foreign private issuer that provides annual disclosures to shareholders of the reasons that the foreign private issuer does not have an independent compensation committee, that does not comply with the requirements of this subsection. (2) Independence of compensation committees The rules of the Commission under paragraph (1) shall require that each member of the compensation committee of the board of directors of an issuer be- (A) a member of the board of directors of the issuer; and (B) independent. (3) Independence The rules of the Commission under paragraph (1) shall require that, in determining the definition of the term “independence” for purposes of paragraph (2), the national securities exchanges and the national securities associations shall consider relevant factors, including- (A) the source of compensation of a member of the board of directors of an issuer, including any consulting, advisory, or other compensatory fee paid by the issuer to such member of the board of directors; and (B) whether a member of the board of directors of an issuer is affiliated with the issuer, a subsidiary of the issuer, or an affiliate of a subsidiary of the issuer. (4) Exemption authority The rules of the Commission under paragraph (1) shall permit a national securities exchange or a national securities association to exempt a particular relationship from the requirements of paragraph (2), with respect to the members of a compensation committee, as the national securities exchange or national securities association determines is appropriate, taking into consideration the size of an issuer and any other relevant factors. (b) Independence of compensation consultants and other compensation committee advisers (1)”

    “In general The compensation committee of an issuer, in its capacity as a committee of the board of directors, may, in its sole discretion, retain or obtain the advice of a compensation consultant. (B) Direct responsibility of compensation committee The compensation committee of an issuer shall be directly responsible for the appointment, compensation, and oversight of the work of a compensation consultant. (C) Rule of construction This paragraph may not be construed- (i) to require the compensation committee to implement or act consistently with the advice or recommendations of the compensation consultant; or (ii) to affect the ability or obligation of a compensation committee to exercise its own judgment in fulfillment of the duties of the compensation committee. (2) Disclosure In any proxy or consent solicitation material for an annual meeting of the shareholders (or a special meeting in lieu of the annual meeting) occurring on or after the date that is 1 year after July 21, 2010, each issuer shall disclose in the proxy or consent material, in accordance with regulations of the Commission, whether- (A) the compensation committee of the issuer retained or obtained the advice of a compensation consultant; and (B) the work of the compensation consultant has raised any conflict of interest and, if so, the nature of the conflict and how the conflict is being addressed.”

    “In general The compensation committee of an issuer, in its capacity as a committee of the board of directors, may, in its sole discretion, retain and obtain the advice of independent legal counsel and other advisers. (2) Direct responsibility of compensation committee The compensation committee of an issuer shall be directly responsible for the appointment, compensation, and oversight of the work of independent legal counsel and other advisers. (3) Rule of construction This subsection may not be construed- (A) to require a compensation committee to implement or act consistently with the advice or recommendations of independent legal counsel or other advisers under this subsection; or (B) to affect the ability or obligation of a compensation committee to exercise its own judgment in fulfillment of the duties of the compensation committee. (e) Compensation of compensation consultants, independent legal counsel, and other advisers Each issuer shall provide for appropriate funding, as determined by the compensation committee in its capacity as a committee of the board of directors, for payment of reasonable compensation- (1) to a compensation consultant; and (2) to independent legal counsel or any other adviser to the compensation committee.”

    “In general The rules of the Commission under paragraph (1) shall permit a national securities exchange or a national securities association to exempt a category of issuers from the requirements under this section, as the national securities exchange or the national securities association determines is appropriate. (B) Considerations In determining appropriate exemptions under subparagraph (A), the national securities exchange or the national securities association shall take into account the potential impact of the requirements of this section on smaller reporting issuers. (g) Controlled company exemption (1)”

  • Section 19271 – Establishment of blockchain and cryptocurrency specialist position within OSTP, 42 U.S.C. § 19271

    “The Director of the Office of Science and Technology Policy shall establish or designate a blockchain and cryptocurrencies advisory specialist position within the Office to coordinate Federal activities and advise the President on matters of research and development relating to blockchain, cryptocurrencies, and distributed ledger technologies. 42 U.S.C. § 19271 Pub. L. 117-167, div. B, title VI, §106710671,, 136 Stat. 1688.”

  • Section 78u-6 – Securities whistleblower incentives and protection, 15 U.S.C. § 78u-6

    “(a) Definitions In this section the following definitions shall apply: (1) Covered judicial or administrative action The term “covered judicial or administrative action” means any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000. (2) Fund The term “Fund” means the Securities and Exchange Commission Investor Protection Fund. (3) Original information The term “original information” means information that- (A) is derived from the independent knowledge or analysis of a whistleblower; (B) is not known to the Commission from any other source, unless the whistleblower is the original source of the information; and (C) is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information. (4) Monetary sanctions The term “monetary sanctions”, when used with respect to any judicial or administrative action, means- (A) any monies, including penalties, disgorgement, and interest, ordered to be paid; and (B) any monies deposited into a disgorgement fund or other fund pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such action or any settlement of such action. (5) Related action The term “related action”, when used with respect to any judicial or administrative action brought by the Commission under the securities laws, means any judicial or administrative action brought by an entity described in subclauses (I) through (IV) of subsection (h)(2)(D)(i) that is based upon the original information provided by a whistleblower pursuant to subsection (a) that led to the successful enforcement of the Commission action. (6) Whistleblower The term “whistleblower” means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission. (b) Awards (1) In general In any covered judicial or administrative action, or related action, the Commission, under regulations prescribed by the Commission and subject to subsection (c), shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the covered judicial or administrative action, or related action, in an aggregate amount equal to- (A) not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and (B) not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions. (2) Payment of awards Any amount paid under paragraph (1) shall be paid from the Fund. (c) Determination of amount of award; denial of award (1) Determination of amount of award (A) Discretion The determination of the amount of an award made under subsection (b) shall be in the discretion of the Commission. (B) Criteria In determining the amount of an award made under subsection (b), the Commission- (i) shall take into consideration- (I) the significance of the information provided by the whistleblower to the success of the covered judicial or administrative action; (II) the degree of assistance provided by the whistleblower and any legal representative of the whistleblower in a covered judicial or administrative action; (III) the programmatic interest of the Commission in deterring violations of the securities laws by making awards to whistleblowers who provide information that lead to the successful enforcement of such laws; and (IV) such additional relevant factors as the Commission may establish by rule or regulation; and (ii) shall not take into consideration the balance of the Fund. (2) Denial of award No award under subsection (b) shall be made- (A) to any whistleblower who is, or was at the time the whistleblower acquired the original information submitted to the Commission, a member, officer, or employee of- (i) an appropriate regulatory agency; (ii) the Department of Justice; (iii) a self-regulatory organization; (iv) the Public Company Accounting Oversight Board; or (v) a law enforcement organization; (B) to any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section; (C) to any whistleblower who gains the information through the performance of an audit of financial statements required under the securities laws and for whom such submission would be contrary to the requirements of section 78j-1 of this title; or (D) to any whistleblower who fails to submit information to the Commission in such form as the Commission may, by rule, require. (d) Representation (1) Permitted representation Any whistleblower who makes a claim for an award under subsection (b) may be represented by counsel. (2) Required representation (A)”

  • Section 78m – Periodical and other reports, 15 U.S.C. § 78m

    “(A) made or provided in the ordinary course of the consumer credit business of such issuer; (B) of a type that is generally made available by such issuer to the public; and (C) made by such issuer on market terms, or terms that are no more favorable than those offered by the issuer to the general public for such extensions of credit. (3) Rule of construction for certain loans Paragraph (1) does not apply to any loan made or maintained by an insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)), if the loan is subject to the insider lending restrictions of section 375b of title 12. (l) Real time issuer disclosures Each issuer reporting under subsec. (a) or section 78o(d) of this title shall disclose to the public on a rapid and current basis such additional information concerning material changes in the financial condition or operations of the issuer, in plain English, which may include trend and qualitative information and graphic presentations, as the Commission determines, by rule, is necessary or useful for the protection of investors and in the public interest. (m) Public availability of security-based swap transaction data (1)”

    “(F) Timeliness of reporting Parties to a security-based swap (including agents of the parties to a security-based swap) shall be responsible for reporting security-based swap transaction information to the appropriate registered entity in a timely manner as may be prescribed by the Commission. (G)”

    “In general In accordance with clause (ii), the Commission shall prescribe standards that specify the data elements for each security-based swap that shall be collected and maintained by each registered security-based swap data repository. (ii) Requirement In carrying out clause (i), the Commission shall prescribe consistent data element standards applicable to registered entities and reporting counterparties. (B) Data collection and maintenance The Commission shall prescribe data collection and data maintenance standards for security-based swap data repositories. (C) Comparability The standards prescribed by the Commission under this subsection shall be comparable to the data standards imposed by the Commission on clearing agencies in connection with their clearing of security-based swaps. (5) Duties A security-based swap data repository shall- (A) accept data prescribed by the Commission for each security-based swap under subsection (b); (B) confirm with both counterparties to the security-based swap the accuracy of the data that was submitted; (C) maintain the data described in subparagraph (A) in such form, in such manner, and for such period as may be required by the Commission; (D) (i) provide direct electronic access to the Commission (or any designee of the Commission, including another registered entity); and (ii) provide the information described in subparagraph (A) in such form and at such frequency as the Commission may require to comply with the public reporting requirements set forth in subsection (m); (E) at the direction of the Commission, establish automated systems for monitoring, screening, and analyzing security-based swap data; (F) maintain the privacy of any and all security-based swap transaction information that the security-based swap data repository receives from a security-based swap dealer, counterparty, or any other registered entity; and (G) on a confidential basis pursuant to section 78x of this title, upon request, and after notifying the Commission of the request, make available security-based swap data obtained by the security-based swap data repository, including individual counterparty trade and position data, to- (i) each appropriate prudential regulator; (ii) the Financial Stability Oversight Council; (iii) the Commodity Futures Trading Commission; (iv) the Department of Justice; and (v) any other person that the Commission determines to be appropriate, including- (I) foreign financial supervisors (including foreign futures authorities); (II) foreign central banks; (III) foreign ministries; and (IV) other foreign authorities.”

    “In general Each security-based swap data repository shall designate an individual to serve as a chief compliance officer. (B) Duties The chief compliance officer shall- (i) report directly to the board or to the senior officer of the security-based swap data repository; (ii) review the compliance of the security-based swap data repository with respect to the requirements and core principles described in this subsection; (iii) in consultation with the board of the security-based swap data repository, a body performing a function similar to the board of the security-based swap data repository, or the senior officer of the security-based swap data repository, resolve any conflicts of interest that may arise; (iv) be responsible for administering each policy and procedure that is required to be established pursuant to this section; (v) ensure compliance with this chapter (including regulations) relating to agreements, contracts, or transactions, including each rule prescribed by the Commission under this section; (vi) establish procedures for the remediation of noncompliance issues identified by the chief compliance officer through any- (I) compliance office review; (II) look-back; (III) internal or external audit finding; (IV) self-reported error; or (V) validated complaint; and (vii) establish and follow appropriate procedures for the handling, management response, remediation, retesting, and closing of noncompliance issues.”

  • Section 769 – Definitions, 47 U.S.C. § 769

    “(9) Orbital location The term “orbital location” means the location for placement of a satellite on the geostationary orbital arc as defined in the International Telecommunication Union Radio Regulations. (10) Space segment The term “space segment” means the satellites, and the tracking, telemetry, command, control, monitoring and related facilities and equipment used to support the operation of satellites owned or leased by INTELSAT, Inmarsat, or a separated entity or successor entity. (11) Non-core services The term “non-core services” means, with respect to INTELSAT provision, services other than public-switched network voice telephony and occasional-use television, and with respect to Inmarsat provision, services other than global maritime distress and safety services or other existing maritime or aeronautical services for which there are not alternative providers. (12) Additional services The term “additional services” means- (A) for Inmarsat, those non-maritime or non-aeronautical mobile services in the 1.5 and 1.6 Ghz band on planned satellites or the 2 Ghz band; and (B) for INTELSAT, direct-to-home (DTH) or direct broadcast satellite (DBS) video services, or services in the Ka or V bands.”

    “(17) National corporation The term “national corporation” means a corporation the ownership of which is held through publicly traded securities, and that is incorporated under, and subject to, the laws of a national, state, or territorial government. (18) COMSAT The term “COMSAT” means the corporation established pursuant to subchapter III of this chapter, or the successor in interest to such corporation. (19) ICO The term “ICO” means the company known, as of March 17, 2000, as ICO Global Communications, Inc. (20) Global maritime distress and safety services or GMDSS The term “global maritime distress and safety services” or “GMDSS” means the automated ship-to-shore distress alerting system which uses satellite and advanced terrestrial systems for international distress communications and promoting maritime safety in general.”

    “STATUTORY NOTES AND RELATED SUBSIDIARIES CHANGE OF NAMEReference to the Director of Central Intelligence or the Director of the Central Intelligence Agency in the Director’s capacity as the head of the intelligence community deemed to be a reference to the Director of National Intelligence.”

  • Section 7217 – Commission oversight of the Board, 15 U.S.C. § 7217

    “(a) General oversight responsibility The Commission shall have oversight and enforcement authority over the Board, as provided in this Act. The provisions of section 78q(a)(1) of this title, and of section 78q(b)(1) of this title shall apply to the Board as fully as if the Board were a “registered securities association” for purposes of those sections 78q(a)(1) and 78q(b)(1). (b)”

    “(2) Review of sanctions The provisions of sections 78s(d)(2) and 78s(e)(1) of this title shall govern the review by the Commission of final disciplinary sanctions imposed by the Board (including sanctions imposed under section 7215(b)(3) of this title for noncooperation in an investigation of the Board), as fully as if the Board were a self-regulatory organization and the Commission were the appropriate regulatory agency for such organization for purposes of those sections 78s(d)(2) and 78s(e)(1), except that, for purposes of this paragraph- (A) section 7215(e) of this title (rather than that section 78s(d)(2)) shall govern the extent to which application for, or institution by the Commission on its own motion of, review of any disciplinary action of the Board operates as a stay of such action; (B) references in that section 78s(e)(1) to “members” of such an organization shall be deemed to be references to registered public accounting firms; (C) the phrase “consistent with the purposes of this chapter” in that section 78s(e)(1) shall be deemed to read “consistent with the purposes of this chapter and title I of the Sarbanes-Oxley Act of 2002″; (D) references to rules of the Municipal Securities Rulemaking Board in that section 78s(e)(1) shall not apply; and (E) the reference to section 78s(e)(2) of this title shall refer instead to section 7217(c)(3) of this title.”

    “(2) Censure of the Board; limitations The Commission may, by order, as it determines necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this Act or the securities laws, censure or impose limitations upon the activities, functions, and operations of the Board, if the Commission finds, on the record, after notice and opportunity for a hearing, that the Board- (A) has violated or is unable to comply with any provision of this Act, the rules of the Board, or the securities laws; or (B) without reasonable justification or excuse, has failed to enforce compliance with any such provision or rule, or any professional standard by a registered public accounting firm or an associated person thereof. (3) Censure of Board members; removal from office The Commission may, as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this Act or the securities laws, remove from office or censure any person who is, or at the time of the alleged misconduct was, a member of the Board, if the Commission finds, on the record, after notice and opportunity for a hearing, that such member- (A) has willfully violated any provision of this Act, the rules of the Board, or the securities laws; (B) has willfully abused the authority of that member; or (C) without reasonable justification or excuse, has failed to enforce compliance with any such provision or rule, or any professional standard by any registered public accounting firm or any associated person thereof.”

    “Pub. L. 111-203 substituted “any person who is, or at the time of the alleged misconduct was, a member” for “any member” in introductory provisions.”

  • Section 7a-1 – Derivatives clearing organizations, 7 U.S.C. § 7a-1

    “In general Each derivatives clearing organization shall establish- (I) appropriate admission and continuing eligibility standards (including sufficient financial resources and operational capacity to meet obligations arising from participation in the derivatives clearing organization) for members of, and participants in, the derivatives clearing organization; and (II) appropriate standards for determining the eligibility of agreements, contracts, or transactions submitted to the derivatives clearing organization for clearing. (ii) Required procedures Each derivatives clearing organization shall establish and implement procedures to verify, on an ongoing basis, the compliance of each participation and membership requirement of the derivatives clearing organization. (iii) Requirements The participation and membership requirements of each derivatives clearing organization shall- (I) be objective; (II) be publicly disclosed; and (III) permit fair and open access. (D) Risk management (i) In general Each derivatives clearing organization shall ensure that the derivatives clearing organization possesses the ability to manage the risks associated with discharging the responsibilities of the derivatives clearing organization through the use of appropriate tools and procedures. (ii) Measurement of credit exposure Each derivatives clearing organization shall- (I) not less than once during each business day of the derivatives clearing organization, measure the credit exposures of the derivatives clearing organization to each member and participant of the derivatives clearing organization; and (II) monitor each exposure described in subclause (I) periodically during the business day of the derivatives clearing organization. (iii) Limitation of exposure to potential losses from defaults Each derivatives clearing organization, through margin requirements and other risk control mechanisms, shall limit the exposure of the derivatives clearing organization to potential losses from defaults by members and participants of the derivatives clearing organization to ensure that- (I) the operations of the derivatives clearing organization would not be disrupted; and (II) nondefaulting members or participants would not be exposed to losses that nondefaulting members or participants cannot anticipate or control. (iv) Margin requirements The margin required from each member and participant of a derivatives clearing organization shall be sufficient to cover potential exposures in normal market conditions. (v) Requirements regarding models and parameters Each model and parameter used in setting margin requirements under clause (iv) shall be- (I) risk-based; and (II) reviewed on a regular basis. (E) Settlement procedures Each derivatives clearing organization shall- (i) complete money settlements on a timely basis (but not less frequently than once each business day); (ii) employ money settlement arrangements to eliminate or strictly limit the exposure of the derivatives clearing organization to settlement bank risks (including credit and liquidity risks from the use of banks to effect money settlements); (iii) ensure that money settlements are final when effected; (iv) maintain an accurate record of the flow of funds associated with each money settlement; (v) possess the ability to comply with each term and condition of any permitted netting or offset arrangement with any other clearing organization; (vi) regarding physical settlements, establish rules that clearly state each obligation of the derivatives clearing organization with respect to physical deliveries; and (vii) ensure that each risk arising from an obligation described in clause (vi) is identified and managed.”

    “Reporting Each derivatives clearing organization shall provide to the Commission all information that the Commission determines to be necessary to conduct oversight of the derivatives clearing organization. (K) Recordkeeping Each derivatives clearing organization shall maintain records of all activities related to the business of the derivatives clearing organization as a derivatives clearing organization- (i) in a form and manner that is acceptable to the Commission; and (ii) for a period of not less than 5 years. (L) Public information (i)”

  • Section 78k-1 – National market system for securities; securities information processors, 15 U.S.C. § 78k-1

    “(a) Congressional findings; facilitating establishment of national market system for securities; designation of qualified securities (1) The Congress finds that- (A) The securities markets are an important national asset which must be preserved and strengthened. (B) New data processing and communications techniques create the opportunity for more efficient and effective market operations. (C)”

    “The Commission is directed, therefore, having due regard for the public interest, the protection of investors, and the maintenance of fair and orderly markets, to use its authority under this chapter to facilitate the establishment of a national market system for securities (which may include subsystems for particular types of securities with unique trading characteristics) in accordance with the findings and to carry out the objectives set forth in paragraph (1) of this subsection.”

    “Except as otherwise provided in this section, it shall be unlawful for any securities information processor unless registered in accordance with this subsection, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce to perform the functions of a securities information processor.”

  • Section 240.21F-2 – Whistleblower status, award eligibility, confidentiality, and retaliation protections, 17 C.F.R. § 240.21F-2

    “(a)Whistleblower status. (1) You are a whistleblower for purposes of Section 21F of the Exchange Act (15 U.S.C. 78u-6 ) as of the time that, alone or jointly with others, you provide the Commission with information in writing that relates to a possible violation of the federal securities laws (including any law, rule, or regulation subject to the jurisdiction of the Commission) that has occurred, is ongoing, or is about to occur. (2) A whistleblower must be an individual.”

    “To be eligible for an award under Section 21F(b) of the Exchange Act (15 U.S.C. 78u-6(b) ) based on any information you provide that relates to a possible violation of the federal securities laws, you must comply with the procedures and the conditions described in §§ 240.21F-4 , 240.21F-8 , and 240.21F-9 .”

    “To qualify for the confidentiality protections afforded by Section 21F(h)(2) of the Exchange Act (15 U.S.C. 78u-6(h)(2) ) based on any information you provide that relates to a possible violation of the federal securities laws, you must comply with the procedures and the conditions described in Rule 21F-9(a) (§ 240.21F-9(a) ) . (d)Retaliation protections. (1) To qualify for the retaliation protections afforded by Section 21F(h)(1) of the Exchange Act (15 U.S.C. 78u-6(h)(1) ), you must satisfy all of the following criteria: (i) You must qualify as a whistleblower under paragraph (a) of this section before experiencing the retaliation for which you seek redress; (ii) You must reasonably believe that the information you provide to the Commission under paragraph (a) of this section relates to a possible violation of the federal securities laws; and (iii) You must perform a lawful act that meets the following two criteria: (A) First, the lawful act must be performed in connection with any of the activities described in Section 21F(h)(1)(A)(i) through (iii) of the Exchange Act (15 U.S.C. 78u-6(h)(1)(A)(i) through (iii) ) ; and (B) Second, the lawful act must relate to the subject matter of your submission to the Commission under paragraph (a) of this section. (2) To receive retaliation protection for a lawful act described in paragraph (d)(1)(iii) of this section, you do not need to qualify as a whistleblower under paragraph (a) of this section before performing the lawful act, but you must qualify as a whistleblower under paragraph (a) of this section before experiencing retaliation for the lawful act. (3) To qualify for retaliation protection, you do not need to satisfy the procedures and conditions for award eligibility in §§ 240.21F-4 , 240.21F-8 , and 240.21F-9 . (4) Section 21F(h)(1) of the Exchange Act (15 U.S.C. 78u-6(h)(1) ), including any rules promulgated thereunder, shall be enforceable in an action or proceeding brought by the Commission. 17 C.F.R. §240.21F-2 85 FR 75942 , Nov. 5, 2020 85 FR 70942 , 12/7/2020”

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The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. The content presented is not intended to be a substitute for professional legal, tax, or financial advice, nor should it be relied upon as such. Readers are encouraged to consult with their own attorney, CPA, and tax advisors to obtain specific guidance and advice tailored to their individual circumstances. No responsibility is assumed for any inaccuracies or errors in the information contained herein, and John Montague and Montague Law expressly disclaim any liability for any actions taken or not taken based on the information provided in this article.

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