[ve55]

It's nice to see action like this being taken in cases so blatantly fraudulent. One thing to take note of here is that the reason why the SEC is taking action is not simply because of reasons related to tokens or securities, but instead due to defrauding and lying to investors.

Hopefully we'll see more cases like this happening to the actors that deserve them the most. I need not mention names since I think others will do that for me.

[wpietri]

Agreed. I heard an ocean of hype about how freedom from regulation would unlock untold innovation. It's been fascinating to watch this space rediscover the reasons that the regulations were created in the first place.

One of the interesting questions for me is the extent to which the space will start to self-regulate. Once an investment type develops a bad reputation, it can be very hard to recover. That's why major stock and commodities exchanges are serious about regulating participants, and can be much more stringent than governmental regulators. Contrast, for example, the way investors feel about NYSE or NASDAQ stocks, versus the penny stock market, which is rife with scams. [1]

Based on the history so far I'm not optimistic. But maybe they'll turn it around.

[1] https://en.wikipedia.org/wiki/Microcap_stock_fraud

[nikcub]

> It's been fascinating to watch this space rediscover the reasons that the regulations were created in the first place.

I've found that ICO's are almost identical to OTC pump and dumps - they're much less sophisticated versions of the same thing

Opportunities that are marketed as investments first, products second. Website homepages that resemble the "investors" section of ordinary website with no actual "product" presence. Vague products in markets that are easy to obfuscate or fake. Affiliations that can be purchased. High profile board members or investors who can be purchased. Social media footprint where people talking about the stock outnumber customers, etc.

If you've spent any time in Yahoo! message boards or Seeking Alpha looking at the hundreds of reverse-IPO's and pink sheet startups you'll recognize all of the same scams (and some of the same names! cough McAfee cough-cough)

[beager]

This is why the hype typhoon of ICOs makes no sense on HN. If you did a "Show HN" with a site that was all pedigree and vagaries, no product, it would get torn to shreds. But by and large, ICO coverage seems breathless and overblown.

It's nice to see the SEC take a more active role though. Maybe they can be a decent enough filter where the ICO world can grow enough trust to be a legitimate vehicle for investing.

[TheSpiceIsLife]

I'm only a casual observer of the financial realm, and thusly hadn't heard of a reverse-IPO.

A reverse takeover or reverse merger takeover (reverse IPO) is the acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public.

1. https://en.wikipedia.org/wiki/Reverse_takeover

[vkou]

> Agreed. I heard an ocean of hype about how freedom from regulation would unlock untold innovation. It's been fascinating to watch this space rediscover the reasons that the regulations were created in the first place.

I have yet to see any crypto-coin-fueled innovations that solved real world problems. I have seen a lot of crypto-coin-fueled innovation in making more money with crypto-coins and their derivatives.

[rapind]

I wonder though if this wasn't regulated wouldn't it eventually become just a filtering / spam problem that the market would solve? There'd be significant damage early on. Then buyers notice and the demand for a private sector solution would emerge.

Like how email is mostly unregulated and yet it works remarkably well.

[wpietri]

Email works reasonably well because a) we can afford to burn computational resources, b) spamming is not very lucrative, and c) we can hide the impact from end users.

Looking at my mail logs, 96% of recent mail on my server is spam. Sampling what I get, it's mostly incredibly dumb-ass garbage, built to take mostly small amounts of money from very unsophisticated people. Nobody is getting rich off it, partly because spamming is illegal and they will put you in jail [1] for it if you do it at large enough scales to make real money. Most importantly, end users don't see the spam, so they don't even know how terrible the medium is.

For financial markets, the way it gets solved in the real world is mostly by investors moving to better markets, ones that are strongly regulated. And it's not just investors. Companies will list on highly regulated markets like the NYSE and the NASDAQ as shows of strength and as ways of tapping the more available, less expensive capital that comes from trust.

So my bet is that the market will solve it by driving entire marketplaces or kinds of assets out of business.

[1] e.g., https://www.theverge.com/2016/6/16/11952266/sanford-wallace-...

[CryptoPunk]

>>It's been fascinating to watch this space rediscover the reasons that the regulations were created in the first place.

There are no regulations needed to go after fraudsters. If someone is committing fraud, they can be prosecuted under common law.

So this space is not rediscovering anything. Everyone supports fraud being prosecuted.

What everyone doesn't support is the creation of a centralized gatekeeper and a preemptive blanket ban on an entire category of digital value/information exchange, that is only lifted on a case-by-case basis if one is approved/registered by/with that gatekeeper.

In other words, people oppose a law being passed to treat non-security tokens the way securities are treated now. That would be disastrous for personal freedom and economic evolution.

[wpietri]

> There are no regulations needed to go after fraudsters. If someone is committing fraud, they can be prosecuted under common law.

This is apparently written from theory, not from data. Actual successful financial marketplaces, like the ones I named, have much more stringent regulations than that. Why? Because waiting for a fraud to blow up and then hoping the police can crack down on it is immensely damaging. Not only to the people who get suckered, but to everybody who hopes to use the marketplace.

Think of it like food safety laws. In theory, the marketplace would take care of this, driving unsafe restaurants out of business through the magic of the invisible hand (plus a lot of visible vomiting from food poisoning). In practice, though, everybody supports food inspectors, food safety ratings, etc. Even restaurant owners, because they want people to not even think about safety. A trusted, regulated marketplace benefits all sincere participants.

> What everyone doesn't support is the creation of a centralized gatekeeper [...]

Sure. And we'll see how that works out.

Historically, gatekeeping behavior both from regulators like the CFTC and the SEC and from marketplaces like the NYSE and NASDAQ arose in response to problems. It's not something people just made up.

Now that the same problems are happening here, I expect there will be some response. Partly, it is regulators coming along and applying existing financial laws. Partly, it will be investors abandoning the whole asset class. But there's also room for the industry to self-regulate. Will the antiregulatory fetish, as typified by your response, win out? Or will, as often happens with other industries, some self-regulation happen?

I look forward to finding out.

[CryptoPunk]

>>Actual successful financial marketplaces, like the ones I named, have much more stringent regulations than that. Why? Because waiting for a fraud to blow up and then hoping the police can crack down on it is immensely damaging.

There is no data to support your assertion. We don't have a control to see what the effect of regulation has been. How can you confidently conclude that regulations made the markets more successful, and that a traditional deterrence approach to fraud wouldn't have worked even better? You can't.

>>Think of it like food safety laws. In theory, the marketplace would take care of this, driving unsafe restaurants out of business through the magic of the invisible hand ... In practice, though, everybody supports food inspectors, ... A trusted, regulated marketplace benefits all sincere participants.

You have not provided any evidence for your last assertion. A policy being wildly popular doesn't mean it's socially constructive or ethical.

>>Historically, gatekeeping behavior both from regulators like the CFTC and the SEC and from marketplaces like the NYSE and NASDAQ arose in response to problems. It's not something people just made up.

Of course, and the War on Drug arose in response to the problem of drug abuse. Alcohol Prohibition arose in response to alcohol abuse. The Iraq invasion and Patriot Act arose in response to terrorism. It doesn't mean the response is either ethical or socially constructive.

>>Now that the same problems are happening here, I expect there will be some response. Partly, it is regulators coming along and applying existing financial laws. Partly, it will be investors abandoning the whole asset class.

I suspect neither of these things will happen. The sector will remain effectively unregulated due to the near impossibility of censoring cryptocurrency transactions, and investors will wisen up just as they have for the last six years in cryptocurrency. Online server side wallets use to be a big thing in Bitcoin. After a string of exit scams and hacks, the collective intelligence increased, and cryptocurrency communities began strongly urging people to avoid such wallets. I suspect a similar spontaneous evolution will happen with token sales as the community matures.

All gatekeeper regulations will do is rob the US of business and cause unnecessary human suffering for those caught in the dragnet.

>>But there's also room for the industry to self-regulate. Will the antiregulatory fetish, as typified by your response, win out? Or will, as often happens with other industries, some self-regulation happen?

It is not a fetish to not want to be subservient to a centralized gatekeeper and be forced to get permission from it to interact with other adults. It is belief in the basic value of human freedom.

[wpietri]

> There is no data to support your assertion. We don't have a control to see what the effect of regulation has been.

The data is called "history".

The US started with no financial regulation; we got regulations and regulatory agencies over time, mostly in response to problems. The exchanges whose history I'm familiar with started small and became more internally regulated over time, again in response to actual problems. Those exchanges were generally run by traders, who are dispositionally anti-regulation. But they are also strongly motivated to have smooth-running marketplaces that are generally trusted. So they made some tradeoffs and found ones they were pretty happy with.

The fact that no devil-may-care marketplace has survived, and the fact that countries with successful financial marketplaces have all converged on similar approaches is as reasonable set of evidence that regulation has value to market participants. You will never really have a control group, because the "no regulation" control group fails hard enough that it isn't sustainable.

> A policy being wildly popular doesn't mean it's socially constructive or ethical.

It doesn't prove it, but for regulations that are popular with all sorts of market participants, it's excellent evidence. The alternative explanation, that you alone are way smarter than all the people who are experienced professionals on many sides of the marketplace, is not particularly persuasive.

> It is not a fetish to not want to be subservient to a centralized gatekeeper and be forced to get permission from it to interact with other adults.

Sure. A desire only becomes a fetish when the desire becomes hugely dominant, pushing all rational consideration aside. Which I believe is often the case in the cryptocurrency/ICO space. For whatever reason, cryptocurrency advocates often value the "you're not my DAD" kind of freedom way more than they value success.

As an example, look at Bitcoin. 8 years in, and its real-world, non-criminal use is approximately zero. That's despite all the hype about Bitcoin international money transfers, Bitcoin shopping, Bitcoin ATMs, et cetera, ad nauseam. In roughly the same time M-PESA has ended up with 30 million users and 6 billion transactions per year. And those are actually useful transactions, not financial speculation.

I have no beef with cryptocurrency advocates pursuing their personal desire for radical independence. Godspeed, and may their Heinlein novels find a nice spot in their seasteading cabin. But I do object to the enormous ahistorical hype and denial that has gone along with it.

It's fine to say, "Well, sure, regulation would make things better for many practical use cases, but we think a high endemic level of fraud and low real-world impact is an ok price to pay for the very narrow kind of freedom we're dedicated to." But I don't appreciate the quasi-religious evangelicalism about the magic power of technology and markets to make everything sunshine and rainbows; and the concomitant notion that the rest of society should just follow their vision and values, never mind the human cost.

[CryptoPunk]

>>The data is called "history". The US started with no financial regulation; we got regulations and regulatory agencies over time, mostly in response to problems.

I've already addressed the weakness of this rationale, and provided multiple examples where even you might agree that institutional and social acceptance is not aligned with good policy.

>>The fact that no devil-may-care marketplace has survived, and the fact that countries with successful financial marketplaces have all converged on similar approaches is as reasonable set of evidence that regulation has value to market participants.

There is absolutely no evidence for your assertion. I present to you guilds:

https://en.wikipedia.org/wiki/Guild#Fall_of_the_guilds

>>As Ogilvie (2004) shows, the guilds negatively affected quality, skills, and innovation. Through what economists now call "rent-seeking" they imposed deadweight losses on the economy. Ogilvie says they generated no demonstrable positive externalities and notes that industry began to flourish only after the guilds faded away. Guilds persisted over the centuries because they redistributed resources to politically powerful merchants. On the other hand, Ogilvie agrees, guilds created "social capital" of shared norms, common information, mutual sanctions, and collective political action. This social capital benefited guild members, even as it hurt outsiders.[24]

We're not in an age of enlightenment. It's entirely possible that the dominant social forces support regulations while said regulations do harm on the balance.

>>It doesn't prove it, but for regulations that are popular with all sorts of market participants, it's excellent evidence.

I strongly disagree. The opinion of the average person on a complex economic subject is about as reliable an indicator of truth as their opinion on the innocence or guilt of a person charged with a crime. With special interests involved, public opinion could easily be swayed.

There's a reason we have a court of law with deliberations in the justice system. Opinion polls are not a credible barometer of the truth.

>>Which I believe is often the case in the cryptocurrency/ICO space. For whatever reason, cryptocurrency advocates often value the "you're not my DAD" kind of freedom way more than they value success.

I don't see why you mock this viewpoint. The government is not our dad. We have legal principles like the First Amendment, that says that "Congress shall make no law * abridging the freedom of speech", and it arose out of a philosophical belief in the inherent right of Man to his freedom. To mock it as if people should accept others dictating their personal life decisions seems totally irrational to me. Why would you not want people to be respected as adults, instead of being treated as children?

How could you not see the danger of abandoning the principle of personal autonomy in voluntary and consensual interactions? There are so many slippery slopes that emerge as that principle is steadily eroded.

>> and the concomitant notion that the rest of society should just follow their vision and values, never mind the human cost.

The rest of society can stay out of cryptocurrency. The side wanting to create centralized gatekeepers are the ones that are the busybodies, sticking their nose where it doesn't belong, to control other people.