Initial Coin Offerings, or ICOs, were an extremely popular way of raising capital in exchange for crypto tokens in 2017 and have led to class action litigation in 2017 and 2018. While ICOs have been around since 2013, they recently became a particularly popular way to finance a project.
These ICOs enable companies to easily release their own freely tradable tokens in exchange for Bitcoin or Ether for projects that may or may not ever succeed.
The Securities and Exchange Commission (“SEC”), Commodity Futures Trading Commission (“CFTC”) and other governmental agencies have sat on the sidelines for a few years, but this is no longer the case. The Federal Trade Commission (“FTC”) brought one of the first governmental actions against a company involved in Bitcoin—Polsinelli’s client, Butterfly Labs (or BF Labs)—in 2014 relating to BF Labs’ preorder model wherein consumers prepaid for BF Labs bitcoin miners that were under development. BF Labs’ successful defense against the FTC amid allegations of fraud may provide insight on class action lawsuits and governmental actions in the future.
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