We keep saying that ICOs have not changed the securities laws and there’s no real magic to how to apply existing securities laws to ICOs. We are sure you’ve read our memo on the topic.
That’s certainly true when it comes to “bounty” or referral programs in the ICO space. In these programs, people get coin or tokens for spreading the word about an ICO offering.
Normal securities laws apply. ICOs have not warped the space-time continuum so as to apply the Securities Act of 1933 differently than other classes of securities.
This means, if your coin or tokens are securities:
- The companies (and we hope you have formed an actual company) issuing the coin or token must register the issuance of the securities to bounty hunters under the Securities Act or find an available exemption from registration;
- The bounty hunters must comply with the “stock touting” provisions of Section 17(b) of the Securities Act; and
- Depending on the manner the bounty hunters are compensated (do they get rewarded merely for referrals to the ICO offering site or for actual investments?) both parties may wish to consider whether the bounty hunter is acting as an unregistered broker-dealer.
Issuers may find it difficult to find an available exemption for these activities. We’ve seen some discussion of relying on Rule 701 under the Securities Act, and we are skeptical. If you are compensating US-based bounty-hunters and they aren’t accredited investors, your best option might be Regulation CF.
H/t to Gary J. Ross, who alerted us to just how widespread these programs are.