Cross-border distribution under MiCA and comparable regimes

Graduate · enrolled learners

This lesson opens with SEC v. block.one (the EOS ICO), September 2019.

What happened

From June 2017 to June 2018, block.one conducted one of the largest initial coin offerings ever, selling EOS tokens to buyers around the world and raising the equivalent of billions of dollars. Because the sale was open globally, it reached United States investors, and to them the tokens were, in the SEC's view, unregistered securities: block.one had neither registered the offering nor qualified it for an exemption. In September 2019 the SEC settled charges with block.one, which agreed to pay a 24 million dollar civil penalty for conducting an unregistered securities offering. The company had not been rescued by being based outside the US, by selling a token rather than a share, or by the global, internet-native form of the sale. The lesson was jurisdictional: distributing an instrument to investors in a country brings it under that country's securities law, whatever the seller's location or the instrument's label, so an offering open to everyone is an offering into every regime at once, and each of those regimes can hold the seller to its own rules. The default came not from the token but from the distribution: selling into the US without meeting US law.

The decision point

Distribution is where a token meets its investors, and the law that governs it is the law of each place those investors are, not the law of the seller's choosing, so distributing a tokenized asset across borders subjects it to every regime it actually reaches, not the most permissive one. Block.one is the case: a global token sale that, by being open to United States investors, became an unregistered securities offering there and drew a 24 million dollar SEC penalty, the offshore base and the token label and the internet-native form all making no difference. This matters acutely for tokenized real-world assets, because a token is borderless by default, reachable by anyone with a wallet, while securities and crypto-asset regimes are emphatically not: the EU's Markets in Crypto-Assets regulation (MiCA) governs the offering and distribution of crypto-assets into the EU and EEA, with authorization requirements and a passport across member states, and comparable regimes apply elsewhere, each to distribution within its own borders. Structures like reverse solicitation, where an investor approaches the seller entirely on their own initiative, are narrow exceptions, not a way to market into a jurisdiction while disclaiming its rules, and regulators read them narrowly. So the decision when distributing a tokenized asset is to determine every jurisdiction the distribution actually reaches and to satisfy each one's regime, through authorization, exemption, or genuine restriction of access, rather than relying on an offshore base, a token label, or a boilerplate disclaimer, because a borderless instrument sold into bordered regimes is an offering into all of them, and block.one is the proof that the regime of the investor's country applies regardless of where the seller sits or what the instrument is called.

Recorded loss

$24,000,000

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

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