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U.S. Securities Laws May Apply to Offers, Sales, and Trading of Interests in Virtual Organizations

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Jul 25, 2017

On July 25, 2017, the Securities and Exchange Commission issued an investigative report cautioning market participants that offers and sales of digital assets by "virtual" organizations are subject to the requirements of the federal securities laws.

Such offers and sales, conducted by organizations using distributed ledger or blockchain technology, have been referred to, among other things, as "Initial Coin Offerings" or "Token Sales." Whether a particular investment transaction involves the offer or sale of a security, regardless of the terminology or technology used, will depend on the facts and circumstances, including the economic realities of the transaction.

The SEC's Report of Investigation found that tokens offered and sold by a "virtual" organization known as "The DAO" were securities and therefore subject to the federal securities laws. The Report confirms that issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies.

Review the press release and the Report of Investigation on the SEC's website.

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