The SEC chief accountant on how to avoid ICO legal issues

The recent speech by Wesley Bricker, the chief accountant of the United States Securities and Exchange Commission, has recently made a speech, and a part of it was dedicated to initial coin offerings (ICOs).

ICOs are similar to IPOs: usually, the cryptocurrency company announces its goal and issues special digital tokens that attract investments and often provide certain service bonuses. The United States authorities view digital tokens as securities, that’s why the SEC constantly appears in the news connected to ICO regulation in the United States of America and beyond. If a company is located somewhere else, but works with American clients or American intermediary banks responsible for transactions and violates the U.S. financial law, it’s very bad news for its owners. This makes it more understandable why the SEC statements are being closely monitored by the cryptocurrency market players around the world.

Wesley Bricker has prepared a list of questions the token issuers better ask themselves if they plan to participate in an ICO and issue tokens.

For issuers:

• What are the necessary financial statement filing requirements?
• Are there liabilities requiring recognition or disclosure?
• Are there previously recognized assets that require de-recognition?
• Are there revenues or expenses requiring recognition or deferral?
• Is there a transaction with owners, resulting in debt or equity classification and possibly compensation expense?
• Are there implications for the provision for income taxes?

For holders:

• Does specialized accounting guidance (such as for investment companies) apply to the holder’s financial statement presentation?
• What are the characteristics of the coin or token in considering whether, how, and at what value the transaction should affect the holder’s financial statements?
• What is the nature of the holder’s involvement in considering whether the issuer’s activities should be consolidated or accounted for under the equity method?

This statement will undoubtedly ease the work of the Commission – some market players might now have better understanding of the defining attributes that make an issuer credible. Investors now, too, can consider the aforementioned before participating in an ICO. However, Mr Bricker specifically states these questions are only illustrative and the list can be widened.