From Inactivity to Full Enforcement. The Implementation of the 'Do No Harm' Approach in Initial Coin Offerings

This Article analyzes the way the Securities and Exchange Commission (SEC) has enforced securities laws with regard to Initial Coin Offerings (ICOs). In a speech held in 2016, the U.S. Commodities Futures Trading Commission (CFTC) Chairman Christopher Giancarlo emphasized the similarities between the advent of the blockchain technology and the internet era, and referred to the “do no harm” approach as the best way to regulate blockchain technology. The “do no harm” approach was implemented in the 1990s’ by the Clinton administration at the beginning of the Internet Era, when regulators fully supported technological innovations without stifling them with burdensome rules. The Article suggests that the SEC adopted a “do no harm approach” and successfully pursued two of its fundamental institutional goals when enforcing securities laws in the context of ICOs: investor protection and preservation of capital formation. After providing a brief description of the basics of ICOs and the way they evolved in the last two years, this Article examines the stages of the transition towards the new phase of full enforcement action implemented by the SEC. The shift from inactivity to enforcement was gradual, characterized by clearly identifiable steps. Data on ICOs demonstrates that this rigorous enforcement of securities laws has not damaged the industry in the U.S. and may suggest that entrepreneurs have adapted to this enforcement approach. By contrast, a lack of enforcement would probably have increased uncertainty to the detriment of investors and entrepreneurs and put the U.S. at a disadvantage in the international arena. Furthermore, the paper emphasizes the importance to pursue specific goals in the short-to-medium term, in particular to make securities regulation uniform and avoid differences at the state and federal levels, and to encourage industry authorities such as Self-Regulatory Organizations (SROs) to develop high standards for self-regulation.