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Comment by brndnmtthws | Hacker News Reader

The ICO funding model seems much better: complete transparency, a truly free market, it's very difficult to manipulate the currency (i.e., magically issuing new coins aka share dilution), and it's easy to get around the stupidity of the US gov by incorporating somewhere with more liberal laws like, say, Switzerland.

Why would you want to business by the rules in the US when the rules only exist to prop up rent seekers and the ruling elite?

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The SEC introduced "accredited investors" in the USA because scammers were taking money from people who didn't/couldn't research scams and lost fortunes in get-rich-quick stock schemes.

That's the story they (the SEC and friends) provide, but to me it seems more like they wanted to make it hard for people with limited means participate in the legalized get-rich-quick schemes.

How about just let the market decide? Why do we have stupid rules that exclude poor people from investing?

Because when those poor people make one bad choice they lose everything, and the state has to take care of them.

Yeah, just like the government bailouts during the 2008 financial crisis[1]. Except the US gov doesn't bail out poor people.

[1]: https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...

If the government hadn't done that, there was a very real chance of the economy grinding to a halt, with mass layoffs resulting, which would have had a very, very large impact on poor people. So yes, in a way, it was a bailout of poor people.

I think they should have done much more to break up the banks into smaller chunks in the aftermath, but I'm tired of this sort of lazy condemnation of what they did as some conspiracy to help rich people and not poor. They were trying to get the country through some very dire times.

Ok.... how does that relate to the topic we're talking about? I know it's fashionable to point to bankers and complain about how bad they are, and while most of it isn't incorrect, it doesn't answer the question of what happens to those who get taken in by scam investments.

A case in point USA retail investors where banned from the Royal mail privatisation which was a no brainer investment

And a scam on the British people.

It's more like the rules exclude honest poor people from investing. I have several acquaintances of modest means who invested in privately traded stocks through the simple expedient of lying about their income and assets. To be clear, I'm not claiming that this is smart or ethical but it happens all the time. People can write down any numbers they want on the accredited investor forms and usually no one checks.

The cost of a bad high-risk investment is an annoyance to a qualified investor. It is catastrophic to a poor person. This is also why we require car/home insurance, but wealthy folks can opt out and self-insure since a total loss won't bankrupt them.

Unfortunately, letting "the market" decide will just make a bunch of poor people into broke people. Do you want to take a risk with a very low chance of success? The state has a Lotto ticket they'd like to sell you.

There could be some kind of test as an alternative way to become an "accredited investor". If you make $250,000 for two years, or have $1 million in liquid assets, or pass the test. Why not?

Because Risk is risky. Even brilliant professional investors have deals which go bad. Passing a test does not remove the bankrupcy problem.

Having a lot of money does not remove the bankruptcy problem. Having a family and/or friend support system does. Maybe if you can get four people who will vouch to let you sleep at their place while you recover from bankruptcy would be a better test?

Also, as said elsewhere, society now seems to let people risk big money gambling at casinos when the expected return is always negative.

Can't let those dirty commoners have access to the juiciest investment opportunities. Those should be reserved exclusively for the already-wealthy. And if they complain, say we know better and it's for their own good. Of course, everyone knows the already-wealthy are smarter than the rest of us, and only they are capable of doing the unfathomably complex math needed to evaluate an investment.

So what do we do when someone who doesn't actually have extra money loses it all in a scam investment?

The same thing "we" do when they spend it all on lottery tickets or blackjack? There are already many existing ways for people to lose all their money, with much lower EV than investing in a small growth company. Why is it that this particular type of investment is carved out as something common people should be protected from?

"How about just let the market decide?"

That's what was the problem; the market was deciding it was a great idea to rip people off.

Its a good question to ask if the regulation is more expensive than the scamming.

For the victims, it certainly wasn't.

And what follows to that assertion?

What I mean is that while it may be worse for optimizing the global output of the system than simply letting the scamming happen (which is what you seem to be asking about), it's important to remember that it's not all about optimizing the global number, but also preventing individuals from experiencing financial ruin.

I dont think prevention of financial ruin is the goal. Any proper investment has that risk as well. I think its just very ill-perceived by the population to have a pit of snakes and scammers and people flailing accusations. But is the bank really any better?

It's the stated goal, there are solid historical reasons for it, and it's a reasonable way to tackle it. It's very disingenuous to equate other investments with ICOs or startups in terms of risk, especially the risk of going to 0. If you invest in 3 random S&P 500 companies, it's very unlikely that you'll end up with $0 from that after 10 years. If you invest in 3 random startups, there's a pretty good chance that you'll have $0 from that after 10 years. If you invest in 3 random ICOs, you're almost certain to have no value from that in 3 years.

If the SEC made it incredibly easy for the general public to invest in startups, scammers would come out of the woodwork to fleece the public, as they have in the ICO world, and as they have in the past for more traditional stock investments. Making a fake company or bullshit ICO and hyping it to the public would be one of the easiest ways to make $10M, and the prospect of that is going to draw a lot of scammers.

> complete transparency

What are the reporting requirements for a company undergoing ICO?

Do holders of ICO tokens have any say in the governance of an ICO company? Can they fire the founders if they are mismanaging the company?

What can they do to stop the founders from taking the money, and going to the Bahamas (Or spending it on their Uncle Tim's consulting business)? What recourse do you, as an owner of an ICO token have against that?

I've never had a serious answer to the last two points. The kind of transparency you tout is not the kind of transparency that securities markets currently lack.

It varies from coin to coin. For example, I prefer to steer clear of coins like XRP which are governed and managed by a central authority (in this case Ripple, Inc.). Something like Decred, on the other hand, has a very interesting governance model[1] which will be proved out by the market.

Many of these projects are open source, so you can audit, compile, and run the source yourself. There's nothing to stop an owner of cryptocurrencies from going to the Bahamas anymore than there is to stop the CEO of Google.

Here's[2] a good introduction to decentralized currencies for you to learn about them.

[1]: https://docs.decred.org/getting-started/constitution/

[2]: https://www.youtube.com/watch?v=fOMVZXLjKYo

When Larry Page goes to the Bahamas, they don't take the company's treasury with them.

Who exactly are the developers going to do with the ICO money? From the looks of it, the answer is 'pay themselves'.

Which is 'fine', if the value they created is the crypto-currency itself - wham, bam, they are done - at the time of the sale. This is not the case for the vast majority of ICOs - there are just a bunch of promises about how eventually the coin will be super-useful, with no oversight for how to get from now to then.

Larry Page (who isn't the CEO of Google btw) still owns all his stock, regardless of whether he's in the USA or the Bahamas.

Larry Page also uses his stock to pay himself.

These cryptocurrencies only have value as long as the market considers them valuable. If Alphabet's stock price dropped, Larry's net worth would decline proportionally.

And yes, they certainly took in money during the initial funding, but Larry and friends did the exact same thing when they pitched Google to early investors.

Larry Page not being the CEO of Google is somewhat pedantic… he's the CEO of Alphabet, formerly known as Google. Sundar Pichai is the CEO of formerly Google's Google division, now known as the only Google, reporting to Larry Page.

In most (all?) recent ICOS you exchange some ETH with an internal token (aka "coins") that is tracked in the ethereum blockchain.

After the ICO the developers have all the ETH and almost no oversight, they can sell the ETH and go to Bahamas. They can claim that the project is dead, and so the internal tokens are effectively worthless, but they already sold the ETH and are already in Bahamas and you can try to extradite them for fraud if lucky. Or they add some more and more features before launching, an decide to work remotely from Bahamas for a few years ...

Pretty much every ICO is a securities offerings. (Don't let the talk about "utility tokens" fool you.) If you offer a security, there are applicable SEC rules. If you want to raise money from unaccredited investors, you have to follow "Reg CF" [1], which involves regulatory filings. Most startups raise money according to Reg D of the 1933 act [2]. Depending on how you advertise your offering, there are more or less strict rules and regulations. For example, if you ever publicly mention the offering, you'll have to verify your investor's accreditation (rule 506(b) vs. 506(c)).

All of this applies to any securities offering, including ICOs.

[1]: https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051... [2]: https://www.sec.gov/fast-answers/answers-regdhtm.html

IANAL… this is not legal advice, etc. etc.

"complete transparency"

How so? What reporting requirements are there for these? What requirements are there on transparency after the ICO?

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