On July 25th the United States Securities and Exchange Commission (“SEC”) released a report to put the market on notice that offers and sales of digital assets are subject to the requirements of the federal securities laws.
The report is a result of an investigation of a German created entity called The DAO (Decentralized Autonomous Organization), which is a virtual organization that exists within computer code and is executed on a blockchain or decentralized ledger. The DAO sold DAO Tokens, which had characteristics similar to stock (e.g. certain ownership and voting rights), with the intent to raise funds to finance various projects. The DAO Tokens were purchased using a digital currency and could be monetized by re-selling the token on a web-based platform that supported a secondary market. The DAO engaged in these offers and sales in the U.S. despite not registering with the SEC.