The Securities and Exchange Commission published a Report of Investigation last week that concluded that digital tokens issued by an entity for the purpose of raising funds for projects – even if using distributed ledger or blockchain technology – may be securities under federal law. If so, such securities must be registered with the Commission or eligible for an exemption from registration requirements. Moreover, the SEC concluded that any person offering trading facilities like an exchange for digital tokens that are securities must be registered as a national securities exchange or be exempt from such registration requirement. The SEC’s Report follows an investigation by the SEC’s Division of Enforcement which concluded that digital tokens offered and sold during April and May 2016 by DAO, an unincorporated virtual organization created by UG, a German corporation, were securities subject to the SEC’s registration requirements. Notwithstanding its finding, the SEC determined not to take an enforcement action against the DAO entity,, any of the natural person founders of the DAO entity or any entity that offered secondary trading in DAO tokens “based on the conduct and activities known to the Commission at this time.” The Commission also declined to take an enforcement action against any intermediary, including any trading facility, involved in the transactions. (Click here for a detailed analysis of the SEC’s Report of Investigation and My View in a special edition of Between Bridges issued on July 26.) In the Report, the SEC raised the possibility that a virtual organization might be required to register as an investment company, but indicated this was beyond the scope of its analysis. The SEC warned, however that, "Those who would use virtual organizations should consider their obligations under the Investment Company Act."