Could Blizzard have an ICO for WoW gold that could only be used as it is now with no attached ideas of selling equity?
1. Was there an investment of money? (money is actually broadly defined to mean anything of value)
2. Was there an expectation of profits from the investment? (this is easy to prove because it's the opinion of the investor)
3. Was the investment of money in a common enterprise? (this means are the interests of the investor and company aligned, or does the investment go into running a business)
4. Does profit come from the efforts of a promoter or third party? (This means is the investor mostly powerless in having their investment go up our down in value)
In your WoW example:
1. Yes
2. Probably for someone
3. Yes, the money is used to develop the platform
4. Yes, if Blizzard hypes their coin or if you can trade it on an exchange
I think the biggest difference between an ICO and a digital good is that ICOs are traded on exchanges. If you buy a digital good and can only use/redeem/trade on the company's platform then it is not a security.
Doesn't seem speculative for the people playing the game. Though for a trader it is.
Fail to see the difference between buy/sells on the company platform compared to a third party. Both could be used for speculation.
Imagine that I bought $10k worth of Chuck E. Cheese tokens and I could convince the SEC that I sincerely expected the value of those tokens to go up substantially. I doubt that would be enough to meet the Howey requirements, even if my expectation was sincere.
They would dismiss your complaint as silly, trivial, and obviously frivolous. That is, your complaint would fail the test of common sense.
If Jose was communicating with an ISIS recruiter but they couldn't pin him on that - could they pin him on the Taco racket?
For your tacos to be securities, the company would have to be working in some capacity to give those tacos more value in the future. Since tacos expire, all reasonable taco investors know that their investment will go to $0 in the near future, therefore no expectation of profit.
It's amazing how broadly security is defined and enforced. The only examples I was able to discuss with the SEC that were not securities were when the asset being sold could not reasonably generate a profit and could not be transferred. Basically like selling a product or accepting a donation.
There is also securities case law where a company sold a security to a single person or very few people and they were sued successfully.
“reasonably expect”, in law, imposes an “objective” standard; the mere subjective expectation of a buyer won't meet it, the court applying the test will need to find that the expectation was objectively justified in the concrete circumstances that existed. It's a much higher bar than merely did any individual buyer have a subjective expectation of profit.
If the coin has a mechanism where it can always be bought for $1 forever it's reasonable that you can't expect a profit.
But ICOs don't do this. They limit quantity to drive demand of people hoping their limited resource will be worth more in the future.
They are certainly not shares. But could you turn such a token into an investment opportunity? Certainly you could.
The stunning reality is that Blockchain technology makes practically everything a security. SEC's wet dream.
It's probably why, on some level, all coupons carry the disclaimer that they have no (or nominal) cash value, and are void if tranferred.
Here is the big reason why. If you are creating an ITO, you are implicitly promising that you will provide tacos to someone in the future.
It is a taco future. You can't just create futures, even taco futures, without falling under regulations.
THAT is the problem with ICOs. Look, if you just want to sell a cryptocurrency, that has ALREADY been created, you won't run into any issues with the law. There is nothing illegal about premining, and selling a crytocurrency.
The problem is when you say "This cyptocurrency represents stake in something that doesn't exist yet, but I totally promise that it will exist in the future". No. Thats a future. Thats a security. If it doesn't exist yet, you can't sell it without falling under security laws.