Sisyphus’ Lament

We must support SEC cryptocurrency rules

The most inspiring lawyer I met in 2018 was Lindsay Lin, Harvard Law School 2015 and quatro kid math major.

Two years out of law school, she became the lawyer in Stellar, a platform to move money “at almost no cost” instantaneously. Lumen, its native asset or built-in digital currency, is the world’s sixth largest cryptocurrency.


Lin unveiled slides on “consensus algorithm” and “non-Turing complete” in a jam-packed Singapore university classroom. I thanked her, explaining that OFW remittances account for 10 percent of our GDP.

Lawyers are critical to integrating such technology with existing financial systems and antimoney laundering rules, before it can allow payments for Shakey’s pizzas or ATM withdrawals.


Our Securities and Exchange Commission’s (SEC) draft Rules on Initial Coin Offerings (ICOs) are thus welcome.

Sadly, we attracted global attention over both Philippine and Hong Kong cease and desist orders for Joseph Calata’s KROP ICO.

Our SEC demonstrated understanding of the “Howey test” and US regulation. But since the “whitepaper” explicitly said KROP tokens convert to shares of stock, our SEC could have succinctly said that ICO was one of the most blatant illegal securities offerings ever.

The draft ICO rules now provide a clear framework both for investment (globally, ICOs raised a reported $5.6 billion in 2017 and $6.3 billion in the first quarter of 2018) and investor protection (a reported 46 percent of 2017 ICOs have since failed, the reality for extremely new technology).

The SEC requires an “initial assessment request,” after which it may require registration similar to that for stocks.

The draft is thoughtful. It makes allowances for new companies that, for example, have no audited financial statements. It requires comprehensive CVs and copies of key contracts and escrow agreements. A startup may not even have a working product, so the team’s caliber and commitments from industry partners—and ability to police vague descriptions—are key.

It requires an “independent code auditor” for programming and security protocols.


There will be technical tweaking.

The draft governs “ICOs targeting Filipinos.” It might clarify application to a Philippine-owned Singapore company offering globally, including the Philippines, or it may hamper Filipinos who go global.

It defines “pre-sale” and “main crowd sale” based on level of advertising, yet the key is whether securities are offered to the public or only to high net worth investors.

It requires both whitepaper (an abbreviated document) and prospectus. It might integrate whitepapers as prospectus summary sections, to avoid any impression that investors need not read full prospectuses.

It defines “blockchain” without the word “decentralized,” a fun philosophical debate.

On legal drafting, it uses four terms—crowd sale, token generation event, initial token offering, initial coin offering—to mean the same thing, and should choose one consistent term, defined to capture all these. Lines with “etc.” should be fleshed out.

Finally, rules on real order book crypto exchanges and trading, especially clarity on taxation, must follow. And legal rules opening crypto to the public must come with education on financial literacy, investment diversification and position sizing.

Governments guarantee not surefire investments, but transparency and accountability. No one knows how crypto and the underlying blockchain technology will evolve. But there is immense potential impact on remittances that form 10 percent of GDP, and on millions of Filipinos with no bank accounts.

We must thus applaud progressive regulators like our SEC, Bangko Sentral and National Privacy Commission, which enable technology instead of blocking it. The Philippines, Singapore, Japan and Thailand are Asia’s progressive crypto jurisdictions. We have a rare opportunity to lead.

One day, it will be Philippine lawyers envisioning the future to global audiences, perhaps even today’s young SEC staffers.

React: [email protected], Twitter @oscarfbtan, facebook.com/OscarFranklinTan. This column does not represent the opinion of organizations with which the author is affiliated.

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