Initial Exchange Offering veteran Adam S. Tracy discusses the legalities of Initial Exchange Offerings versus Initial Coin Offerings and offers guidance on recent regulatory updates.
TRANSCRIBED FROM: https://adamtracy.io/video/initial-exchange-offering-law/
Now, how widely possible is that? We’ll see, but it’s possible. So, you have these IEOs, which are just ICOs sold through crypto-exchange, and I think they’re good ideas, because you already create the listing. You create the listing for the token, you create the liquidity. The problem with small-cap or micro-cap IPOs, and why they’re so hard to fund, in my experience, has always been that the purchase of the stock precedes the public listing of the stock. So, there’s never that guarantee that what you’re buying will ever be tradable, will ever be liquid. Well, the IEO actually kind of solves that problem, when you think about it, because what it does is it creates the listing and then you sell it through the exchange, but it’s really just an ICO. So, if that token is a security and you’re selling it as an IEO, you’re still going to run into the same regulatory issues. There’s nothing helping you. There’s nothing protecting you. There’s nothing unique about it from a legal perspective.
The only nuance to it, from a legal perspective, is that now, the exchange, for all my exchange clients out there, if you’re doing an IEO and that token that you’re selling is in fact a security, you’re acting as one of two things, either an unlicensed national securities exchange, which under Section 6 of the Securities Exchange Act, in order to facilitate trading of a security, you must be, or an exemption there from, which is an alternative trading system, which, presumably… Well, there are none right now that list crypto-currencies. So, presumably there aren’t any out there that I know about. Two, you’re facilitating an offering of securities for a fee, but you’re not licensed as the appropriate dealer.
So, while the ramifications, the legal ramifications that inure to the issuer are the same in the ICO and the IEO, the IEO actually takes a great deal of regulatory peril and places it on the crypto-exchange, because they have the possibility of acting as either the unlicensed national security exchange or the unlicensed broker dealer.
So, it’s great from a sales perspective. It’s probably a much… makes a lot more sense, because so many ICOs and so many tokens struggle to list on exchanges, even though for the most part it’s just a matter of paying the fee, in a lot of these third-tier exchanges, but it’s just still an issue somehow. I don’t understand how, but the regulatory peril that you face as an ICO issuer or an IEO issuer, same thing, exact same thing. So, it’s not this panacea, it’s a panacea maybe to selling them, if you can’t sell your ICO, but it’s not a panacea for any sort of regulatory issue. I mean, when people say that it kind of makes you want to throw up in your mouth because it just doesn’t make any sense. It belies understanding.
So, ICOs versus IEOs, it’s just in the mechanics of the sale. There’s nothing nuanced to it from a legal perspective, but as always, hit me up if you have questions. I’m happy to debate. AdamTracy.io, and I’m Adam Tracy, and I’ll talk to you soon.
A former professional rugby player, Adam S. Tracy brings over twenty years’ experience as an attorney, consultant and dealmaker with a particular focus on cryptocurrency, digital products, payments and immersive corporate structures. As an accomplished executive and advisor to high risk merchants and stakeholders, Adam has proven himself as a results oriented, decisive leader with proven success advising early market entrants, technology adapters, as well as established participants across a wide range of verticals. Adam Tracy’s attack-first personality allows him to excel in dynamic, demanding environments including complex corporate negotiations, distressed environments and regulatory investigations.
In addition, Adam S. Tracy also has a successful track record co-founding high risk industry ventures, building & leading cross-functional teams, and spearheading diverse corporate transactions. A serial entrepreneur, Adam has successfully started and created exits across a wide swath of markets, including various mobile SaaS ventures, nutraceuticals, peer-to-peer payment systems, and several telemarketing-based ventures. Moreover, as a recognized expert in the payments field, Adam Tracy has been a blockchain and digital currency evangelist and influencer since the early days of Bitcoin.
Utilizing his proprietary “Pre-Event Driven™” strategy for decision making, Adam S. Tracy further leverages his over twenty years’ experience to create cost-effective, value-add solutions for each client. A data-driven acolyte, Adam continually refines his strategies based on field studies and data collection. Moreover, Adam Tracy further augments his range of solutions by actively networking with regulators, liquidity providers, legal and compliance experts, deal-flow brokers, investors and management of leading high risk industry ventures.
Adam S. Tracy earned his Bachelor of Science in Computer Applications and Bachelor of Science in Finance from the University of Notre Dame. He subsequently earned his Masters in Business Administration from the DePaul Kellstadt Graduate School of Business, while concurrently earning his Juris Doctorate from the DePaul College of Law. Adam lives outside Chicago with his with his wife, four dogs, and two cats.
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