DAO Tokens, Section 5 Obligations and Regulation ATS - YouTube

I’m attorney Laura Anthony founding partner of Legal & Compliance, a full service corporate,

securities, and business transactions law firm.

Today is the continuation in a LawCast series talking about the recent SEC investigation,

report, and public statements related to initial crypotocurrency offerings, or ICOs.

On July 25, 2017, the SEC issued it’s Report on an investigation into the ICO by the DAO,

an unincorporated entity, Slock.it, a German organization, and various principals and participants

in the offering.

Previously in this LawCast series I went through the parameters of the Howey Test to determine

if a particular investment contract is a security under the federal securities laws and applied

that analysis to the DAO and it’s ICO offering facts.

Upon concluding that the DAO Tokens were securities, the SEC also concluded that the DAO needed

to register their issuance, or satisfy a registration exemption, regardless of whether the DAO was

incorporated or an unincorporated organization.

Issuers, like securities, are broadly defined to include any sponsor or organization that

is primarily responsible for the success or failure of a venture.

Participants in an offering are also subject to Section 5 obligations (Section 5 is the

registration obligations) and concurrent liability.

Accordingly, this included the Slock.it founders and principals in the offerings.

The secondary trading platforms also required registration, or the availability of an exemption,

under the federal securities laws.

Section 5 of the Exchange Act makes it unlawful for any broker, dealer or exchange to directly

or indirectly affect any transaction in a security or report such transactions unless

the exchange is registered on a national exchange or exempted from such registration.

Section 3(a)(1) of the Exchange Act defines an exchange as any organization, association,

or group of persons, whether incorporated or unincorporated, which constitutes, maintains,

or provides a market place or facilities for bringing together purchasers and sellers of

securities or for otherwise performing with respect to securities the functions commonly

performed by a stock exchange as that term is generally understood.

The functions of a stock exchange generally include: bringing together orders for securities

of multiple buyers and sellers; and using established, non-discretionary methods under

which such orders contracts interact with each other, and the buyers and sellers entering

into such orders agree to the terms of that trade.

A frequent exemption to the definition of an exchange is an Alternative Trading System,

ATS, which complies with Regulation ATS.

Regulation ATS requires, among others, registration as a broker-dealer.

The OTC Markets, for example, is an ATS, as is t0 Technologies.

The platforms that traded the DAO Tokens fit within the definition of an exchange and did

not satisfy any available registration exemptions.

I’m securities attorney Laura Anthony, founding partner of Legal & Compliance, and producer

of LawCast.

Should you have any questions about today’s topic, please visit SecuritiesLawBlog.com

and LawCast.com, or contact me directly.

Inquiries of a technical nature are always encouraged.