The SEC’s investigation had been going on for years and, in an apparent surprise to Dragonchain, as the statute of limitation was about to run, the SEC informed the company in April that it would be bringing charges. Thus, even in advance of the filing of the SEC’s complaint, Dragonchain posted its defense to the SEC’s charges.
One of the main points that Dragonchain made is that, unlike so many of the other ICO cases brought by the SEC, Dragonchain had an actual business and product prior to the time of the ICO. It also noted how Dragonchain proactively sought the advice of IP and securities law focused attorneys prior to launch. And it filed for a provisional patent on the token model in August 2017.
Dragonchain also went through the four Howey factors and argued why they did not apply to its case. For example, in connection with the first Howey prong — an investment of money — Dragonchain conceded that purchasers paid with Bitcoin or Ethereum, which could be classified as money. But it did not agree that the purchase was an investment because it was literally a direct purchase of a utility token software micro-license which would be expected to be used as a utility.
‘Enforcement 40’ for 2020
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