What is Securities Law?

Securities law governs the issuance and trading of investment instruments to protect investors from fraud and ensure fair markets. In the US, it is enforced by the SEC under the Securities Act of 1933 and the Securities Exchange Act of 1934.

How does Securities Law work?

Most securities must register with the SEC before public sale.
Issuers must provide comprehensive disclosures to investors.
The Howey Test determines if a crypto token is a security: an investment of money in a common enterprise with profits expected from others' efforts.
Tokens meeting all four Howey prongs must comply with securities regulations or face enforcement.

Why does Securities Law matter?

Most ICO scams of 2017-2018 involved unregistered securities. Compliance prevents fraud but also creates significant barriers for legitimate crypto projects.

Key features of Securities Law

Howey Test is the primary framework for classifying crypto tokens
Non-compliance carries severe penalties including disgorgement and fines
Rapidly evolving as regulators issue new guidance
Applies differently based on token structure and distribution method

Examples of Securities Law

Many 2017 ICOs were unregistered securities that led to fraud and SEC enforcement. LBRY's token was classified as a security.

The SEC's case against Ripple clarified that XRP sales to institutions were securities transactions.