It shall be unlawful for any person. . . . to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.

It’s no joke. For example, in April 2017 the SEC brought an enforcement action charging 28 businesses and individuals for participating in a scheme to generate bullish articles on investment websites like SeekingAlpha.com, Benzinga.com, and SmallCapNetwork.com while concealing the compensation. See Press Release, SEC: Payments for Bullish Articles on Stocks Must Be Disclosed to Investors, Rel. No. 2017-79 (Apr. 10, 2017).

Hypothetical examples in the Crowdfunding and token world:

  • NewCo pays an industry periodical to publish an article written by NewCo that purports to objectively rate the “Top 10 ICOs of 2018” and happens to list NewCo’s ICO as #1. Section 17(b) doesn’t make the article illegal, it just says the periodical has to disclose both the fact that it’s being paid and the amount of the payment.
  • If NewCo paid me to highlight its ICO on this blog, I’d have to report the compensation.
  • A real estate Crowdfunding platform sends an email promoting an offering, or a group of offerings, on its platform. That email is not covered by section 17(b) because of the italicized language above, i.e., it’s clear that the email is an offer of securities (which raises its own issues, separate from section 17(b)).
  • An investor relations firm places favorable articles about NewCo in trade publications while NewCo’s ICO is live. Those articles are covered by section 17(b).
  • A live event called “ICO Summit World” purports to highlight “The Most Promising ICOs of 2018,” but presents only companies that pay to play. Definitely covered by section 17(b).

My sense is that in the Crowdfunding world, and especially in the token world, there’s a lot of paid promotional activity going on without the disclosure required by section 17(b). The securities laws don’t apply to tokens, right?