When participating in my first ICO, I noticed that this particular one had a line in their ToS that said: “You may not participate in the ICO if you are a resident of the United States of America.”
I thought it was just something that company was doing. I was wrong. ICO after ICO I noticed that same message about US citizens.
Whats the Reason For This?
The United States is quite strict when it comes to investment regulations. Only accredited investors can partake in private placements of securities. While some people would urge all cryptocurrency ICOs are tokens and not securities, regulators will have a very different opinion regarding this matter. A lot of the ICOs we have seen can be labeled as traditional sales of equity.
The team organizing a cryptocurrency ICO cannot guarantee only accredited US investors will partake. They can take the necessary steps to prevent most US citizens from investing, although these measures can be bypassed. Right now, the ICOs tend to ask if you are a US citizen, but there is no verification of whether or not one speaks the truth. Some projects use geolocation applications to block US citizens, but those can easily be bypassed with a proxy or VPN. It is impossible to prevent US citizens from participating, but these measures have to be taken regardless.
Some of the bigger cryptocurrency ICOs will ensure they hire lawyers who can create a more “workable” environment for interested parties. If they would not take these steps, their entire token sale would be liable to criminal charges in the US. That is, assuming the SEC (Securities and Exchange Commission) would ever decide to investigate a particular crowdsale for those specific reasons. It is highly unlikely that will happen, even though the SEC is looking to regulate ICOs moving forward.
Once the SEC effectively intervenes in cryptocurrency ICOs – which is only a matter of time – things will get very interesting. A lot of previous ICOs didn’t take the necessary steps to “deny” US citizens from investing. All of those projects and their teams are at the mercy of the SEC for the time being. Violating US securities laws is not something anyone wants to deal with. Additionally, these laws can also be enforced upon non-US companies, which makes it even more important to take countermeasures.
It is evident this unregulated space will be of keen interest to financial watchdogs all over the world in the coming years. The bigger question is how many companies will get burnt for not doing their due diligence. It is bad enough to know most of these projects may ultimately fail. Worrying about future criminal charges will certainly have a big impact on all of these crowdsales moving forward.