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Attorney Pamela Morgan Explores Initial Coin Offerings from a Legal Perspective

“The law cares about how you use these technologies...If you use it like a stock, you’re probably going to be regulated as if it’s a stock.”

During a recent talk at Blockchain Meetup Zurich, Pamela Morgan, who is the CEO of Third Key Solutions and an attorney at Empowered Law PLLC, shared some of her thoughts on Bitcoin, Ethereum and blockchain technology from a legal perspective. While she claimed to often hear that smart contracts are going to replace lawyers, Morgan said she does not believe this will happen; however, she added that lawyers definitely need to pay attention to this space.

“Smart contracts will not replace lawyers; however, smart contracts will replace lazy lawyers,” Morgan said. “The real question is: What value is being provided? ... If you’re providing value of filling in a form and you’re using the same form you’ve used for every other client, guess what? Those days are numbered. However, if you’re providing strategy, if you’re understanding the business nuances and the risks, those services are not going to be outsourced — and certainly not by smart contracts — anytime soon.”

According to Morgan, Bitcoin and related technologies will affect the practice of law in every possible area. A slide from Morgan’s presentation listed 21 types of law that will be affected by the technology, and one of the specific areas of law she explored in the context of blockchain technology was the use of crypto tokens as an alternative to traditional avenues for public investment.

What Is an Initial Coin Offering?

The first area of law explored by Morgan during her talk was initial public offerings (IPOs). An IPO is a type of public offering in which shares of a company are offered to the general public for the first time. There is a large amount of regulation and added costs involved with this process. For example, according to Forbes, underwriters received $51 million when financial data provider Markit Ltd. went public in 2014.

An initial coin offering (ICO) is a process by which a percentage of the initial supply in a new digital currency project is offered to the public. It is said that these sorts of offerings require less regulatory hassle because they’re described as software pre-sales rather than public stock offerings, but it’s unclear if this claim is true at this point in time.

The Blockchain Doesn’t Shield You From the SEC

“For those of you who practice securities law, you are terrified, and you probably should be,” Morgan said about ICOs during her recent talk. “If anyone is selling these securities to U.S. citizens, you will get in trouble with the SEC for sure. I’m sure there are other jurisdictions that don’t look kindly on this, so this is a developing area of law.”

Ethereum is perhaps the most notable project that was launched via an ICO, of sorts, and it’s unclear whether the SEC will eventually clamp down on this sort of activity. While the Ethereum Foundation contends that ether is a product, rather than a security or investment vehicle, their claim can be open to alternate interpretations.

Morgan told Bitcoin Magazine that while the ether presale looks less like a security than many of today's ICOs, that doesn’t mean that the SEC will be appeased. “Ethereum wouldn't be the first to attempt legal sophistry and semantics to avoid regulation; the SEC takes a dim view of such tactics. If in the eyes of the SEC the Ethereum presale is deemed a security, no disclaimers by the company will deter SEC action.”


ConsenSys, which is an incubator of Ethereum projects, has been involved with a number of token offerings on top of the Ethereum platform, and their chief of staff Jeremy Millar recently noted that even they have a fair amount of skepticism of the viability of most of the recently launched ICO projects.

“The law cares about how you use these technologies,” Morgan explained during her talk. “If you use it like a stock, you’re probably going to be regulated as if it’s a stock.”

Differentiating Between Scams and Legitimate Projects

There have been many scams in the Bitcoin space over the years, and offering some sort of alternative token other than bitcoin is involved with a high percentage of these fraudulent schemes.

During her talk, Morgan explained that many of the bitcoin alternatives on the market have no special value to offer. “Some of them are actually centralized,” she noted. “Some of them are actually pretty close to what I would call a Ponzi scheme. Some of them are offering guaranteed returns. It’s kind of the Wild Wild West out there; it’s kind of a mess.”

In Morgan’s view, the best way to tell the difference between a scammy kind of altcoin and one that may offer value is to look at Bitcoin’s and Ethereum’s core characteristics of decentralization, independence, openness and consensus based on proof of work. “The further you get away from these characteristics, the more you have a chance of being in that dangerous kind of scammy zone,” she added.

Kyle Torpey

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