The judge for the Balestra v. ATBCoin LLC et al. case has said that even if token holders are not entitled to corporate profits, it could still be considered a security.
A new opinion may provide us with some further indication on what is to be considered a security token. Although we have had such similar rulings in the past, and various SEC cases on the matter, clarification is still needed.
The ATBCoin ICO commenced in 2017 and raised some $20M. The coin, according to the court, was promoted as an “innovative decentralized cryptocurrency” which would tailor to the needs of market-makers. The coin made claims such as being the “best cryptographic network in the Milky Way galaxy” capable of bringing blazing fast speeds and zero cost.
Since the ICO, the ATB blockchain has made none of its promises. In fact, the cryptocurrency has lost 85% of its value since the ICO. The judge found that the Howey Test was satisfied. Although the defendant argued that the stipulations of “common enterprise” and “profits from efforts of others” were not satisfied, the court disagreed.
Corporate Profit-Sharing Not Required to Be Considered a Security
The Court further clarified in its ruling that it did not matter that ATB Coins did not entitled purchasers to ATB’s profits. In fact, the Court agreed that an ICO can be a security even if it does not provide a pro rata distribution of profits. The Court substantiated this claim by pointing to the language of of ATB’s marketing efforts which clearly depicted it as an “investment. “
Based on the SEC guidelines, the judge found that the assertion of ATB coin as an “investment” in their promotion, even though they did not explicitly mention corporate profit-sharing, made it effectively a security.
You can read the entire opinion here.
Do you agree with the judge’s ruling? It is clear that ATB Coin was a security? Let us know your thoughts in the comments below.