A Citrus Barron from the 1920’s Holds the Key to the Legality of ICOs

Citrus Barron

ICOs (initial coin offerings), “TOKEN SALES” and TGEs (token generated events) are all the rage and are a great new way to raise capital for startups. Putting a bit of dent in the traditional venture fund business, too. Ah, BUT there is always the law and the regulator cops that muck things up for the “fun havers”. The basic question, are these securities? Lots of opinions but in most cases, yes they are. We have all heard the analogy…..”if it walks like a duck, quacks like a duck………it’s probably a duck” (or a very good Halloween costume). NOW, the regulators cite the Howey case. So, whats the Howey case? Well, a 1920’s Florida citrus mogul that set the precedent for today’s crypto rules. Read on and learn about W.J. Howey and some history. Fascinating.
(Bill Taylor/CEO)


“This year alone, technology startups have raised a staggering $3.2 billion through Initial Coin Offerings, or ICOs, with the cumulative value of token sales skyrocketing by more than 1100 % in the past year alone, according to CoinDesk’s ICO Tracker.

Also known as “Token Sales,” ICOs enable startups to raise money for their projects by selling crypto coins as a form of equity both to sophisticated investors and the average public. This democratization of fundraising through ICOs has generated a level of excitement, some say greed, comparable to the old days of gold prospecting in the Wild West.

“Anytime you have new concepts that are disruptive to old ways of doing things,” says Paul Atkins, CEO of Patomak Global Partners, “That gets a lot of people interested and focused.”

 Including at the U.S. Securities and Exchange Commission, (SEC), where Atkins once served as a commissioner. In July, the federal agency issued an investigative report warning startups that their tokens could constitute securities and  subject to federal securities laws. “We seek to foster innovative and beneficial ways to raise capital,” said SEC Chairman Jay Clayton, “While ensuring – first and foremost – that investors and our markets are protected.”

But the SEC report, much of it based on an obscure 1946 Supreme Court test called the Howey test involving Florida citrus grove investments, has only raised more questions than it has answered and has token lawyers reaching for their legal tomes to see exactly how that historic case relates to modern day digital assets. As ICOs skyrocket in popularity as a viable alternate form of capital raising, and given the steep penalties for non-compliance with securities laws, there’s a growing sense of urgency around finding ironclad answers to some of these challenging questions. For instance, what constitutes a security when it comes to digital tokens? How does the Howey test apply to the different examples of tokens surfacing daily? And most importantly, how can startups issue tokens without running afoul of the law…

…From Citrus to Crypto 

Many legal experts say the Supreme Court ruling’s securities broad stroke has enabled it to stand the test of time for more than seven decades even as the nature of securities has morphed dramatically. Unlike today’s digital assets, the 1946 ruling had to do with a much simpler investment asset — citrus groves, owned and operated by a Florida land baron named W.J. Howey, who is widely considered the father of asset-backed securities…”

Full Story at Forbes.com