Whitepapers Are Just Liability Documents

Securities laws have historically required prospectus level or similar disclosures, for example, 81 101 or 41 101 or offering memorandum level disclosure.

They severely restricted marketing prior to prospectus filings, a period known as “testing the waters” where one would solicit “expressions of interest”.

They limited securities offeringsoutside of the prospectus regime to accredited investors, certain categories of people or entities deemed sophisticated (from the perspective of an ability to hire professional advisors or understand finance and/or a capacity), as listed in National Instrument 45–106 or on the pop-ups of many financial institution websites.

Whitepapers Are Just Liability Documents
Whitepapers Are Just Liability Documents

These laws were further refined to permit crowdfunding campaigns with less than prospectus level disclosure but subject to strict limitations on the offering including on investment size.

All of the above however required, at law, full, true and plain disclosure. Not plain, not true, but “full”, “true” and “plain”. Emphasis on the “full”: you couldn’t have one-sided regulatory disclosure documents (e.g. prospectuses, annual information forms, fund facts, offering memorandums) or even marketing documents. You couldn’t disclose the good; you had to disclose the bad — the voluminous risks from business, political, economic, personnel/ key man, legal, technical, financial to regulatory and otherwise, broken down to far more specific and narrow sub-categories and explained at length. These disclosures took up pages and pages and pages of space.

But here’s the thing. Not that much has changed.

What’s changed isn’t the law but public perception. The public perceives and the media reinforces (incorrectly) that cryptocurrencies aren’t regulated. This isn’t true. ICOs could certainly be even more regulated. There could be creative ways to create new laws and regulations specific to this new technological phenomenon, like Putin’s proposal of miner registers, for example.

But cryptocurrencies aren’t not regulated. Cryptocurrencies are regulated by securities laws and regulations, consumer protection laws, contract law, anti-money laundering laws, tax laws and otherwise.

They’re regulated.

On the matter of tokens that aren’t securities (which every regulator has stated explicitly constitute but a minority) there are relevant laws and regulations to which they are subject, even if and when those laws aren’t securities laws.

Securities law and regulation is hardly the only legal regime kicking around. You’d think it was on the basis of the headlines and TV interviews and media quips. But I don’t take my medical advice from non-doctors and I won’t look for legal reasoning from TV spots with non-lawyers.

So if you’re just a token — and when I say “just a token” I don’t mean a token as defined by the business person or technologist launching the token who is in no way qualified to provide legal opinions on the definition of a security, but rather a “token” as determined by professional evaluation of a securities lawyer or securities regulator — e.g. sandbox — even in that circumstance you are still subject to such laws and regulations as tax, consumer protection and contract.

Maybe “contract law” is not “regulatory”. So perhaps not all of it is “regulatory”, per se. But it’s legal. And maybe this confused and misused “regulatory” vernacular misses the point. The point that there is “legal” oversight and consequence, whether it be pursuant to “law” or more specifically pursuant to “regulation”.

It may be further that enough people launching cryptocurrencies may come from technology rather than finance. Many professionals who have been working in finance have gotten used to regulation and disclosure. They’ve potenitally had decades of experience with audits and with compliance departments and with close calls and with understanding the impact of law and regulation on disclosure documents. That you can’t just say anything in a prospectus, an advertisement, a report to shareholders or investors, a commercial or even an email blast. That “selling” doesn’t occur in a magical fantasy land. Sales of “coins” or “tokens” doesn’t occur in a happy place with flying cows, mad hatter tea parties and legal and regulatory vacuum. Financial services people have often been forced of necessity and environent to learn that if you do just “say anything”, without legal review and oversight, you come under fire from (depending on industry, nature of communications and other factors) any or all of the Competition Bureau for deceptive marketing or spam, the Canadian Securities Administrators for illegal offerings without proper registration and documentation, or for illegal misrepresentations, or class actions law firms and the court system for statutory and tort claims and contract law claims for misrepresentation and breach of consumer protection legislation and breach of contract, to name a mere few.

Let’s take the United States, here’s just how “unregulated”cryptocurrencies are. Cryptocurrencies in the States are regulated by:

  • private law
  • public law
  • anti-counterfeit laws
  • AML laws
  • the Securities and Exchange Commission
  • the Commodity Futures Trading Commission
  • criminal law
  • consumer protection law
  • tax law

More concretely as a case study on operating a bit too freely, googleTezos. Tezos isn’t subject to a lawsuit. It’s subject to MULTIPLE class action lawsuits. It was also not an industry darling but THE industry darling right before it got hit.

The good news is this is all totally unavoidable if you open up the isolated island and let the professionals in.


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