CrowdfundInsider | By Amy Wan | August 4, 2017

On Tuesday, July 25, the SEC announced that Initial Coin Offerings, also called Token Sales, in many cases may be considered securities. Of course, this probably terrifies a large amount of the ICO community. So how do you actually legally raise an ICO?

Your first consideration should be whether you want to take U.S. investors. Many people seem to think that if they form the ICO in another country, they are not subject to U.S. laws. If only it were so! In truth, U.S. securities laws apply whenever someone is raising capital from a U.S. investor. It doesn’t matter if you are onshore or offshore–it only matters if you are going to include U.S. investors in the raise.

This all ultimately becomes a business decision. If you choose to include U.S. investors in your ICO event, you pay the price of adherence to U.S. securities laws. If you do choose to include U.S. investors on the ICO offering, the next question becomes what kinds of U.S. investors are you going to take funds from?

See: ICOs: New Model of Blockchain Capitalism

This boils down to two categories of people: rich people and non-rich people.

Limiting it to Rich People Only

Under Rule 506(c) of Regulation D, the SEC allows you to take as much money as you want from rich people only. There is no waiting period–you simply tell the SEC about your raise after the fact. You do, however, need to have proper legal paperwork. Because you are going to be openly advertising the ICO, the SEC requires you to take reasonable steps to verify that your investors are actually rich.

When I say “rich”, I’m talking about what the SEC thinks a rich person is. Their technical term for this is “accredited investor”–or a person with at least $1 million in net worth (excluding their primary residence), or with an annual income of at least $200,000. The investor will be required to prove to you that they meet this threshold.

Raising from Non-Rich People

• Raises up to $1 million

Under the relatively new Reg CF rules, ICOs can raise up to $1 million every 12 months from non-rich investors. In order to do so, however, the investor must file some paperwork, get their financials together, and find a registered funding portal or broker dealer that will list them.

Although not the strictest of the fundraising regulations, some issuers may still find this type of raise burdensome. This is because they will have to spend money on at least a financial professional and an attorney. Additionally, they will be subject to some annual reporting requirements and so should be okay with transparency.

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