Adam Tracy’s Top Ten Terrible ICO Ideas — Part 1 of 2

The bitcoin lawyer Adam S. Tracy lists the top ten (10) terrible ideas to incorporate with your Initial Coin Offering “ICO” including why each tactic is a pitfall to conducting a legally compliant ICO.

Video found at: https://bitcoin-lawyer.org/crypto_videos/top-ten-terrible-ico-ideas-part-1-2/

TRANSCRIPTION:

So the SEC came out and filed a civil action against this AriseBank, and it got me thinking because it had two of the ten things that I hate the most about iCOs and just need to go if this is going to have any sort of legitimacy going forward. This shit just has to stop, it’s ridiculous. So my top 10 in no specific order:

1) Stop using legal terms of art. You are not a bank. AriseBank was not a bank. If you want to be a bank, go to your State Comptroller, go through the like years of regulations and applications and background checks, and pay all the money and become a bank. Or, go through the Controller of the United States Currency and do the same thing, but have the millions and millions of dollars in reserve capital that you need to become a bank. Do not call yourself a bank because you act like a bank. Okay. A bank is a term of art. Same goes for initial coin offering. Stop using initial coin offering because offering is a term of art, and offering is an offering of securities. It’s nothing more. If you want to call it an ICO, then be prepared to file the securities laws. If you don’t then, then don’t call it that. Don’t call it something it’s not. So, you’re not a bank. You’re not doing an offering, right? So legal terms of art: out the window. Stop doing it.

2) Paid promotion. Right? This AriseBank used Evander Holyfield, of all people, to promote this ICO. And the problem for Evander who seems like a really nice guy, maybe not the brightest guy, but the reality is Evander doubtedly got paid to promote this. And much like the rules that applied to penny stocks and paid promotion in the equity world will apply to something like this. If you don’t disclose what you’re paying notable people like these celebrities (I think Paris Hilton’s done it, Floyd Mayweather’s done it), that could be a crime. At a minimum it’s a violation of the Securities Act. And not only does that imply or inure to the issuer, but it also inures to the individual, who’s doing the promotion — getting paid and then allowing their likeness to be used without some sort of disclosure what that person’s getting paid for.

3) And this is a random thing… the advisors thing. Right? You know, ICOs — you have all these advisors. LinkedIn — everybody’s an advisor. RIght? There’s all these advisors and they want two, three Bitcoins so you get to put their face on their white paper. Listen in the real world, right, in the actual equity world, people become directors and they get paid as directors and they typically don’t get paid any money to be a director. What they get paid in is stock of the company that they’re in, because conceivably they’re going to act in the best interest of the company that they’re acting for. And what directors do — they show up, they go to directors meetings, they make decisions, they vote, they have to read, they do something. Right? In most cases, they have to like maybe get in a plane once in a while. These advisors who just want money, what are you getting at? I mean they don’t do anything. Fine, they may be some blockchain expert, but what are you actually getting for your money? And if anybody really understands what their role is, the role is minimal. The role is they got paid to get stuck with some white paper. So it’s a complete and utter nonsense. It doesn’t make any sense. And you know, why people continue to pay these advisors and why there’s so many self-styled advisors when they don’t even rise to the level of directors, right? The board of directors of General Motors don’t get paid cash. They get paid in stock. So why would some small ICO pay like $25,000 for an advisor who doesn’t even have to vote? It’s very confusing.

4) Then the next thing it has to go is the foundations. Right? The use of foundations in any sort of token offering or any sort of token deal. Foundation is, by definition, a not-for-profit. A not-for-profit, by definition, is a 501c3 under the the tax code. So if you to go off this foundation, and you really want to project to the market that you are not doing this for profit, that you don’t want to pay taxes because you have this altruistic vision, that’s fine. But you better maintain that. You better actually act like an actual non-for-profit, and go through the process of getting the non-for-profit declaration, and then continue to what? Not gain profit or not get taxed on profit, and not have a profit motive — have an altruistic motive, have a charitable motto. So I don’t know what people want when they see and ICO and it’s a foundation. Well, who cares about the foundation. Like you have this technology, and what are you telling me? You’re not in the technology to make money? You’re not profit-driven? Who wants to invest in something that’s not profit motivated. It doesn’t make any sense to me. So the foundation model, if you will, or whatever it is, especially like in Switzerland where you know, you’re paying $50,000 and that paid in capital for these foundations, which quite frankly are no different than setting up a statutory trust for $25 Wyoming, you’re welcome, there’s no reason. And when you see them, I just think you should run the other way.

5) The backed by gold, right? I see more ICOs where they’re backed by gold, backed by silver, backed by oil, backed by real estate, backed by something. None of that’s real unless you can prove it, especially stuff that’s in the ground, right? In private equity and publicly traded stock, you can’t make claims that you have certain reserves without having certain levels of geological reports. And so, to suggest that your token or your coin is backed by some natural resource is completely illogical, absent of you having spent literally millions of dollars of actually having proven geological surveys done that actually show that x y z is in the ground, and can actually be brought up out of the ground. Because the reality is just because you have gold doesn’t mean it’s worth being that far down to bring the gold up. It depends on what the price of gold is. Same with oil, right? That’s why you see capped wells. Well, if the price of oil goes down, it doesn’t make sense to go that far down and get oil that nobody wants. So at the end of the day, when you’re doing a ICO and it’s backed by something. Don’t just say that. That is the red flag #1. And if you are going to say that, if you insist on saying it, make sure you have it. And make sure you have it by some sort of geologist or some person who’s remotely qualified to tell you whether or not what you purport to have is actually in the ground or around the ground. So, decidedly, do not do that. And at the same time, if you in fact do that, and that token or that coin is representative of some pro rata share or the ability to like turn in that token and receive, you know, whatever — bar of gold or whatever the case may be. What you have is a Futures Contract. If you have a Futures Contract, then you have a commodity. And if you have a commodity then you’re subject to the Commodities Act. And so, then you’re right up the same boat in the same stream that you would be with, you know, ICOs that are securities. You have to be registered. Be registered a commodity trading advisor. You may be a futures merchant. It depends what you’re doing. But the reality is, if you are so insistent on marketing your token or coin to some some innate asset, whether it even exists or not, you’re purporting and representing to all your investors that you have, in fact, a commodity or Futures Contract of some kind, which is a regulated product, and you most likely don’t have the licensure or the formation do it correctly.

So, those are my first five. I’m gonna go calm down and come back to do the next five of worst things in the ICO world that need to go. Check me out Bitcoin-lawyer.org, which I am not a foundation, by the way. I’m not a foundation. I hate them, but that was the only domain available. So I’m going to just qualify my previous point about foundations. I’m not a foundation because I’ve got a for-profit. Thank you.

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A former competitive rugby player, serial entrepreneur and, trader attorney, Adam S. Tracy offers over 17 years of progressive legal and compliance experience in the areas of corporate, commodities, cryptocurrency, litigation, payments and securities law. Adam’s experience ranges from commodities trader for oil giant BP, initial public offerings, M&A, to initial coin offerings, having represented both startups to NASDAQ-listed entities. As an early Bitcoin adapter, Adam has promoted growth of cryptocurrency and offers a unique approach to representing crypto-clients. Based in Chicago, IL, Adam graduated from the University of Notre Dame with dual degrees in Finance and Computer Applications and would later obtain his J.D. and M.B.A. from DePaul University. Adam lives outside Chicago with his six animals, which is illegal where he lives.

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