a16z Crypto Advises Against U.S. Token Sales, Citing Regulatory Risks
Silicon Valley-based venture capital firm a16z Crypto, the crypto arm of Andreessen Horowitz, issued a stern warning on April 25 to startup founders considering token sales in the United States.
The advisory comes amidst growing regulatory scrutiny and enforcement actions by the US Securities and Exchange Commission (SEC).
“The SEC argues that nearly every token should be registered under US securities laws,” commented a16z Crypto’s general counsel Miles Jennings.
Selling Token In The US Carries Significant Legal Risks
a16z Crypto’s general counsel, Miles Jennings, emphasized that publicly selling tokens in the US could expose startups to significant legal risks. Jennings highlighted the SEC’s application of the Howey Test, a benchmark for determining whether an asset qualifies as a security.
“Nowhere is the application of the Howey test easier than with respect to primary transactions (i.e., token sales to investors by token issuers),” wrote Jennings. “In many ICOs, token issuers made clear representations and promises to investors that they were going to fund their operations with the proceeds from the token sale and deliver a future return to investors.”
Jennings highlighted the consequences of a token being classified as a security, citing the lengthy registration processes, extensive disclosures, and stringent financial requirements that issuers must contend with.
“Those cases were securities transactions, regardless of whether the instruments being sold were digital assets or shares of stock,” said Jennings. “Case closed.”
He cautioned that noncompliance with securities laws often results in severe penalties.
“The SEC argues that nearly every token should be registered under US securities laws,” he reiterated.