, 21 tweets, 5 min read Read on Twitter
1/ 🚨SEC drops the hammer on Block.one. Does this mean EOS is a security now? Why is the penalty so small compared to the size of the ICO? Must exchanges de-list? Can I really do two tweet tempests in a single day? Answers below👇
2/ Today, SEC published its order instituting Cease and Desist Proceedings against Block one, the creators and sellers of the EOS token. SEC says the token was a security.
3/ B1 says... that they're "excited" to be done with the matter. I gotta be honest, I'd be happy too. Not sure I'd be "excited" but, this strikes me as well-handled by the lawyers defending the company.
4/ Why did the sale create a security, according to the SEC? Well, one of the interesting things about this order is an absence the kind of analysis to which we've become accustomed. No stepping through all of the Howey factors here.
5/ Instead, SEC focused on the "expectation of profit from the efforts of others" prong. SEC found that the tokens were sold PRIOR to the team delivering on a list of promises of functionality.
6/ We talk about this in the SAFT Project Whitepaper. Specifically, we say that this is the kind of thing that can create a security in the US.
7/ SEC looked at this same prong from another direction, what's come to be known as the "manner of sale". And wow, let me tell you, they focus hard on it.
8/ That is to say, the *way* in which the token was sold created the security:

“the money we spent on those initiatives will be returned value for the network”

"the money raised in the ICO would be spent wisely to fund development"
9/ More interesting stuff in this order: SEC drills down on the attempts B1 took to block US purchasers. Apparently they just weren't good enough ...given all of the things B1 did to attract US purchasers.
10/ Sure, they blocked US IPs and purchasers agreed they were ex-US in the purchase agreement.

On the other hand, they promoted EOS at Consensus in nyc, *ahem* BOUGHT A BILLBOARD IN TIMES SQUARE, and threw an afterparty.
11/ So on to meaty stuff.

Q: Is EOS a security now?

A: It is no more and no less a security than it was yesterday.
12/ Remember, there were two tokens. An ERC-20 sold in the sale, and then the native EOS token on the blockchain ultimately launched.
13/ According to the SEC, the intermediary ERC-20 token was a security. The Order does not take a position on whether the EOS token is a security.
14/ B1 says on their blog that this resolves all outstanding matters with the SEC, which implies the SEC doesn't have any currently-pending work on the EOS token. Nice for B1.
15/ "And Marco, $24 million is a tiny fraction of the bajillions of dollars raised in the ICO! How did they get away with a slap on the wrist?"

First of all, they raised a bajillion *globally*. Likely less from US investors, which is the group SEC is concerned with.
16/ Second of all, they had excellent counsel. Their in-house counsel is not on cryptotwitter (which is unacceptable). Defense counsel here was @brianeklein:

@brianeklein 17/ What about future litigation though? Does the Order block attempts by private plaintiffs to hold B1 liable?

Quite the opposite.
@brianeklein 18/ You can bet that this Order will be cited for generations seeking to paint B1 as malfeasant, and, specifically, as a securities law violator.

"But Marco, B1 didn't admit wrongdoing!

They didn't, but doesn't matter.

"This isn't admissible!"

It most certainly is.
@brianeklein 19/ "Ahah! So exchanges will have to delist the token!"

No, I don't think they will. The order doesn't take a position on the native EOS token, so exchanges that listed it probably won't delist because of this. Exchanges that weren't going to do so won't change their minds.
@brianeklein 20/ The SEC and B1 found a way to give the government its due without tanking the network. Actually, this is resolution is... elegant.
@brianeklein 21/ Oh right, here's the source material ;-)

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