Finally, the Securities and Exchanges Commission (SEC), run by the elite former bankers’ lawyer Jay Clayton, has implicitly revealed in diplomatic language why they have undertaken such strict enforcement against ICOs to the point many consider over-reaching.
Barely a sentence goes by without Clayton mentioning retail investors or Main Street, that being ordinary people, while accredited investors, that is rich billionaires, is not mentioned once in the draft testimony to the Committee on Banking, Housing, and Urban Affairs (Banking? Housing? Urban Affairs?).
“My efforts – and the tireless efforts of the SEC staff – have been driven by various factors, but most significantly by the concern that too many Main Street investors do not understand all the material facts and risks involved,” Clayton says.
Yes, we’re idiots. Unlike traditional stock markets where you have to pay for even charts, we don’t have the infrastructure that provides it for free in the crypto space (we do). So we can’t see price goes up and price goes down (we can).
Nor are we able to analyze a product offering, make reasonable decisions, decide the level of risk we wish to take, and so on. Only the rich can do that.
“The significant amount of capital – particularly from retail investors – that has poured into cryptocurrencies and ICOs in recent months and the offshore footprint of many of these activities have only heightened these concerns.”
Particularly from retail investors. Because, of course, if it was rich investors, they can do what they want. And if it was banks, they can even bankrupt countries on SEC’s watch and get away with absolutely all of it.
The century old law in question is the Securities Act of 1933. A law written shortly after a time when you could not even vote if you were not rich, and women could not vote even then.
A time when if you were of color you were not even consider to be a human, and if you were like Alan Turing, you’d be sent to prison and even tortured for daring to love.
That same law applies to this age, unchanged, and it says you have to comply with some very expensive, time consuming and burdensome regulations unless you are an accredited investor, defined as:
“Any bank… [or] Any natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds $1,000,000… [or] Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year… [or] Any entity in which all of the equity owners are accredited investors.”
So you can not raise capital nor can you invest in a smart idea unless you are a bank, very rich, or the company/project where you are to invest is owned by a bank or very rich people.
That is the very definition of discrimination, and its injustice does not have to be elaborated. If these laws are so good that they protect us so well, then they should apply to all, or none. And they should certainly apply to casino banks.
They don’t, because they were written at a time when only the rich could vote, and thus the rich wrote the laws. And despite their flowery language of protecting us for our own good, the law only protects the rich and banks from our competition.
This law can not stand in this age. It should be torn. For this law is perhaps the sole reason why we are seeing inequality skyrocket. We, the people, can simply not take part in the value creation process unless we give 40% or more of our company to rich billionaires, on top of the state taxes and so on.
That is not to say there should be no law. There are bad actors and we would very much like to see them punished. Such as this one given by Clayton as an example:
“In September 2017, we brought charges against an individual for defrauding investors in a pair of ICOs purportedly backed by investments in real estate and diamonds.”
If those facts are indeed correct and proven, we fully agree the full force of the law should come down on the perpetrators. Because fraud is fraud, whether in an ICO, in a contract, in an advertisement, or in anything else.
There are punishing laws, rightfully, that try to deter fraud and other crimes, which have nothing to do with the discriminatory Securities Act. Here’s another given example:
“After being contacted by the SEC last December, a company halted its ICO to raise capital for a blockchain-based food review service, and then settled proceedings in which we determined that the ICO was an unregistered offering and sale of securities in violation of the federal securities laws.”
What did the innovative food review app do? It didn’t do nothing! Their only sin was not complying with discriminatory laws written before world war two. Their executives seemed capable, the app was even established with many users already, their lawyer said it was a utility token, then SEC goes knocking.
What are those seemingly very reasonable innovators to do? Spend millions in a court case and still risk loosing it? Or voluntarily give up their freedom instead, which they did.
That enforcement action is completely unjustified and SEC’s interpretation of even Decentralized Autonomous Organizations being securities is so unreasonable that we don’t think it would ever hold in a court of law.
Words can be molded as one pleases, but to apply ancient discriminatory laws to organizations where investors have full control over the asset, unlike in traditional equities where they hand over the money, is very much of a stretch.
Clayton did of course say that he encourages innovation and so on, but his entire draft testimony is focused on effectively beating down “retail” investors, while not trying to justify once why this law discriminates, nor does he ever mention that the rich and banks are fully exempt from all of it as it relates to the matter in question. Capitalism for them, communism for us.
Congress should update this unjust discriminatory law, or innovative talented individuals will have to go somewhere else, with Switzerland, Tokyo and plenty others lining up.