DAO Tokens, Section 5 Obligations and Regulation ATS- On July 25, 2017, the SEC issued its Report on an investigation into an ICO and related activities by the DAO, an unincorporated entity, Slock.it UG (“Slock.it”), a German corporation, and various principals and participants. Previously in this Lawcast series I went through the parameters of the Howey Test to determine if a particular investment contract is a “security” under the federal securities laws and applied the analysis to the DAO and its ICO offering. Upon concluding that the DAO Tokens were securities, the SEC also concluded that the DAO needed to register their issuance, or satisfy a registration exemption, regardless of whether the DAO was incorporated or an unincorporated organization. Issuers, like securities, are broadly defined to include any sponsor or organization that is primarily responsible for the success or failure of the venture. Participants in an offering are also subject to Section 5 obligations and liability. Accordingly, this included the Slock.it founders and principals...

1. DAO Tokens, Section 5
Obligations and
Regulation ATS
DAO Tokens, Section 5 Obligations and Regulation ATS- On July 25, 2017, the SEC
issued its Report on an investigation into an ICO and related activities by the DAO, an
unincorporated entity, Slock.it UG (“Slock.it”), a German corporation, and various
principals and participants. Previously in this Lawcast series I went through the
parameters of the Howey Test to determine if a particular investment contract is a
“security” under the federal securities laws and applied the analysis to the DAO and its
ICO offering…

2. DAO Tokens, Section 5 Obligations and Regulation ATS
• DAO Tokens, Section 5 Obligations and Regulation ATS- On July 25, 2017, the SEC
issued its Report on an investigation into an ICO and related activities by the DAO,
an unincorporated entity, Slock.it UG (“Slock.it”), a German corporation, and
various principals and participants. Previously in this Lawcast series I went
through the parameters of the Howey Test to determine if a particular investment
contract is a “security” under the federal securities laws and applied the analysis
to the DAO and its ICO offering.
• Upon concluding that the DAO Tokens were securities, the SEC also concluded
that the DAO needed to register their issuance, or satisfy a registration
exemption, regardless of whether the DAO was incorporated or an
unincorporated organization. Issuers, like securities, are broadly defined to
include any sponsor or organization that is primarily responsible for the success
or failure of the venture. Participants in an offering are also subject to Section 5
obligations and liability. Accordingly, this included the Slock.it founders and
principals.

3. DAO Tokens, Section 5 Obligations and Regulation ATS
• The secondary trading platforms also required registration, or the
availability of an exemption, under the federal securities laws. Section 5 of
the Exchange Act makes it unlawful for any broker, dealer or exchange to
directly or indirectly affect any transaction in a security or report such
transaction unless the exchange is registered as a national exchange or
exempted from such registration. Section 3(a)(1) of the Exchange Act
defines an “exchange” as “any organization, association, or group of
persons, whether incorporated or unincorporated, which constitutes,
maintains, or provides a market place or facilities for bringing together
purchasers and sellers of securities or for otherwise performing with
respect to securities the functions commonly performed by a stock
exchange as that term is generally understood …”

4. DAO Tokens, Section 5 Obligations and Regulation ATS
• The functions of a stock exchange generally include: (i) bringing together
orders for securities of multiple buyers and sellers; and (ii) using
established, non-discretionary methods under which such orders interact
with each other, and the buyers and sellers entering such orders agree to
the terms of the trade. A frequent exemption to the definition of an
exchange is an Alternative Trading System (ATS) that complies with
Regulation ATS. Regulation ATS requires, among others, registration as a
broker-dealer. The OTC Markets is an ATS, as is t0 Technologies. The
platforms that traded the DAO Tokens fit within the definition of an
exchange and did not satisfy any available registration exemptions.

5. DAO Tokens, Section 5 Obligations
and Regulation ATS