Vertalo sees ICO compliance fix as core business next year
VERTALO SEES ICO COMPLIANCE FIX AS CORE BUSINESS NEXT YEAR
Vertalo, the Austin, Texas based blockchain services firm, plans to focus much of its energies in 2019 working with companies that have completed initial coin offerings but still need to comply with existing regulations, CEO Dave Hendricks said.
“Last year was the year of the ICO - 675 have been done in the US alone - and that business just stopped dead in its tracks and the pendulum is swinging to the exact other side … towards compliance and trying to make these offerings legitimate,” Hendricks said.
How many of those companies can pull that off is difficult to estimate, according to Hendricks. The biggest issues in deciding if it’s possible is size - they have to be big enough to afford it - and how well they’ve managed their treasury since the ICO.
Part of the process may include returning funds to at least some investors so it is unclear, and down to a case by case process, on what sums will be involved, Hendricks said.
The US Securities and Exchange Commission last month in two rulings indicated a path forward for such companies after earlier in the year indicating the tokens used in ICOs may be securities, and subject to existing regulations.
CarrierEQ (Airfox), the Boston, Massachusetts-based microlender, and Paragon, the Los Angeles, California-based cannabis company using blockchain, were fined USD 250,000 by the SEC for arranging unregistered initial coin offerings, but at the same time were allowed to work towards registering the tokens they sold as securities.
CarrierEQ raised USD 15m last year and Paragon raised USD 12m
The work to get companies compliant is likely to generate “many” millions in fees for companies advising on the process, Hendricks said.
A certain set of the potential companies will likely end up returning the money they raised and folding because they just didn’t have a business plan that stands up to real scrutiny, he added.
About 70% of the USD 11.9bn raised in ICOs last year went to “higher quality projects”, according to a report this summer from advisory firm Statis Group. It defined higher quality as those deals that moved on to trade on cryptocurrency exchanges. Just over 10% of 2017 ICOs were scams, Statis alleged.
Vertalo, which is owned by another blockchain startup SeriesX, also provides shareholder registry services for blockchain companies in addition to its compliance services business.
The company opted to go into the business after it stepped back from its own ICO when it discovered the many regulatory and other issues on that path, Hendricks said. “We felt the problem ourselves,” he said.