Are ICOs Securities? Yes. For Two Reasons.

ICOs Porn and the SEC

Even if there has not yet been a crystal clear ruling by the SEC, there are two main reasons why ICOs are going to be ruled as securities:

Stupidity and lawyers.

1) Stupidity:

People will literally do anything to make an extra buck…

This includes investing in scammy ICOs that, on their face, offer… literally… zero chance of success.

But the stupidity doesn’t end at investment… It continues when the “investors” are shocked (SHOCKED!) when their money evaporates after they invest with unscrupulous creeps.

Then they complain… To the New York Post.

Porn + cryptocurrencies = great investment opportunity… Hey, what could go wrong?

Just today the NY Post reported that several investors in an ICO called “Fantasy Market” (i.e. “Bitcoin for Porn“) complained when the money they invested in Fantasy Market’s “FM Tokens” surprisingly vanished into thin air.1

The founder, “Jonathan Lucas”, a pseudonym whose identity apparently no one has yet been able to verify, disappeared with their cash.

The  money that was “invested” was supposed to be used to buy the porn tokens which could be used to pay for streaming porn… Remarkably, “Jonathan Lucas” was able to raise almost $5 million in this scam.

(Deep breath).

Haven’t these morons heard of PornHub?

In any event…

The website for Fantasy Market now has a message that reads:  

“Any remaining investors who have not received their refund should contact Please provide your transaction ID to help expedite the process.

All cryptocurrency investments were accepted in terms of USD, and the conversion rates used were determined by the market price at the time of the investment. Similarly, investments are being returned at the USD rate in which they were received. For example, if 1.5 ETH was invested when 1 ETH = 1,000 USD, then 1,500 USD will be returned to the investor, regardless of the current price of ETH.

Any remaining refund requests need to be submitted by April 1st, 2018.”

(sniff, sniff… Maybe they should have invested in SpankChain.)

The Post’s article reports that one investor who did receive his refund is still “unhappy”.

Good thing for him there are…

2) Lawyers

Practicing lawyers (and even recovering ones2) know a good thing when they see it… And they certainly see it in the mania that is cryptocurrencies and ICOs.

Meanwhile, the SEC is literally encouraging them to pursue any and all idiotic ICO-related scams, such as the one mentioned above.

Interestingly, with the exception of its clear ruling on the nature of the tokens at the heart of the DAO fiasco, the SEC seems cautiously accepting of cryptocurrencies…

That said, towards the end of his most recent statement on December 11th, 2017, the Chairman of the SEC, Jay Clayton, was pretty clear regarding his and the SEC’s general position on coins and/or tokens when he wrote (emphasis mine):

“By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws.  Generally speaking, these laws provide that investors deserve to know what they are investing in and the relevant risks involved.  

I have asked the SEC’s Division of Enforcement to continue to police this area vigorously and recommend enforcement actions against those that conduct initial coin offerings in violation of the federal securities laws.”

Class Action ICO Lawsuits

On Coindesk today, an article was posted by David Silver, founder of a plaintiff’s law firm called Silver Miller, who is actively filing lawsuits against exchanges, such as Coinbase and Kraken, that are alleged to have run afoul of U.S. securities laws.

One class action lawsuit posted on the Silver Miller website asserts that Coinbase was involved in a money laundering scheme by one of its customers for “aiding and abetting breach of fiduciary duty, aiding and abetting conversion, negligence, and unjust enrichment.”

That sucks for Coinbase.

Because, when you look across the spectrum of players, Coinbase, as a trusted third party to many investors, is probably one of the better actors in the cryptocurrency ecosystem.


When taking the broadly worded language of the Howey Test at face value alone, it would appear that any ICO could be classified as a security.

But when combined with the legal publicity driven by investor stupidity, and class action lawsuits spurred on by the SEC, it seems all but inevitable that all ICOs will be regulated as securities.


  1. The investment name LITERALLY has the word “fantasy” in it…!
  2. Joseph Grundfest, a Stanford law professor, and former SEC commissioner referred to ICOs as: “the most pervasive, open and notorious violation of federal securities laws since the Code of Hammurabi…”