{"id":500,"date":"2017-09-01T20:40:12","date_gmt":"2017-09-01T20:40:12","guid":{"rendered":"https:\/\/davidgerard.co.uk\/blockchain\/?p=500"},"modified":"2017-09-02T11:50:22","modified_gmt":"2017-09-02T11:50:22","slug":"the-sec-told-you-it-was-watching-now-its-calling-ico-promoters-protostarr-benjacoin","status":"publish","type":"post","link":"https:\/\/davidgerard.co.uk\/blockchain\/2017\/09\/01\/the-sec-told-you-it-was-watching-now-its-calling-ico-promoters-protostarr-benjacoin\/","title":{"rendered":"The SEC told you it was watching \u2014 now it\u2019s calling ICO promoters: Protostarr, BenjaCoin …"},"content":{"rendered":"

Protostarr<\/a> is an aspiring entertainment industry company that was running an ICO. The ICO has been shut down after a call from the SEC<\/a>:<\/p>\n

On August 24, 2017, we were contacted by the United States Security and Exchange Commission regarding the initial coin offering of Protostarr tokens to fund the development of our Ethereum decentralized application. After consultation with multiple lawyers, we have decided to cease further operations and refund Ethereum collected in our crowdsale that began on August 13, 2017.<\/p><\/blockquote>\n

Protostarr was building a \u201cDigital Media Investing DApp,\u201d in which you would fund a video maker\u2019s YouTube or Twitch channel and get a percentage of their advertising income. (White paper<\/a>, archive<\/a>.) They appear<\/a> to have been sincere, well-intentioned and upfront about who they were and what they were doing.<\/p>\n

Two SEC investigators phoned<\/a> Joshua Gilson at Protostarr on 24 August, seeking to ascertain if their ICO constituted selling a security.<\/p>\n

Protostarr hadn\u2019t thought to seek legal advice before starting the ICO. (\u201cWe\u2019re just a couple guys who are tech nerds in our basement,\u201d says Gilson.) They’d thought their tokens wouldn\u2019t count as securities because they didn\u2019t confer ownership in Protostarr itself \u2014 but the SEC notes<\/a> that a hallmark of a security is “a reasonable expectation of profits based on the efforts of others,” and Protostarr\u2019s white paper explicitly states \u201cThe Protostarr investor token allows investors the opportunity to share the combined income.\u201d And Protostarr is a US-based company<\/a>, and calling them \u201cinvestor tokens\u201d may have caught the SEC\u2019s eye.<\/p>\n

Gilson called various securities lawyers, none of whom were sure either. The SEC Office of Small Business Policy<\/a> advised that the conservative course of action would be to refund everyone. Protostarr will be returning the 119.5 ETH<\/a> (about $47,000) to the 118 buyers starting tomorrow, 2 September; the SEC isn\u2019t expected to penalise them.<\/p>\n

Protostarr has been today\u2019s big news, but they aren\u2019t the only ICO that\u2019s had a call \u2014 Andrew Chapin from BenjaCoin<\/a>, which ran an ICO selling tokens for its ad network<\/a>, had a nice conversation<\/a> in late July with Mark Vilardo from the SEC. Chapin is confident<\/a> that BenjaCoin wouldn\u2019t constitute a security under SEC rules, though it\u2019s being traded on exchanges<\/a> just like any other ERC-20 token<\/a> that crypto investors buy low in order to sell higher.<\/p>\n

The SEC seems to be taking a soft touch approach with ICO promoters, but I’d expect they’ve called and had a quiet word with others too. (Compare the $20,000 fine<\/a> for Elaine Ou\u2019s Sand Hill Exchange<\/a> a couple of years ago, which provoked an official investor warning<\/a>.) Remember that regulators are not in fact there to harsh your mellow \u2014 the third point of the SEC\u2019s mission statement<\/a> is \u201cfacilitate capital formation.\u201d But of course, point two is \u201cmaintain fair, orderly, and efficient markets,\u201d and point one is \u201cprotect investors.\u201d Assume the SEC\u2019s Distributed Ledger Technology Working Group<\/a> is actively monitoring the space.<\/p>\n

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Protostarr is an aspiring entertainment industry company that was running an ICO. The ICO has been shut down after a call from the SEC. And they’re not the only ones to get a call.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[34,32,9,35,31,33],"class_list":["post-500","post","type-post","status-publish","format-standard","hentry","category-uncategorised","tag-andrew-chapin","tag-benjacoin","tag-ico","tag-joshua-gilson","tag-protostarr","tag-sec"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/500","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/comments?post=500"}],"version-history":[{"count":39,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/500\/revisions"}],"predecessor-version":[{"id":605,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/posts\/500\/revisions\/605"}],"wp:attachment":[{"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/media?parent=500"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/categories?post=500"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/davidgerard.co.uk\/blockchain\/wp-json\/wp\/v2\/tags?post=500"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}