Xiao Sa from Dacheng Law Firm: Rational suggestions on the follow-up disposal of various ICO projects

Author: Xiao Sa, a lawyer at Dacheng Law Firm

This afternoon, the central bank released the "Announcement on Preventing Risks of Token Issuance and Financing" on its official website, which clarified the essential attributes of token issuance and financing activities and put forward regulatory requirements.

Various ICO project entities have expressed their willingness to accept regulation. As ordinary legal professionals, we hope to provide various ICO participants with some rational suggestions on subsequent disposal from the perspective of existing laws, in order to minimize social impact, reasonably protect the rights and interests of investors, and properly handle risks in a stable manner.

1. Those who have raised bitcoins but have not issued tokens

For those who have raised Bitcoin, Ethereum, etc. but have not yet issued tokens, please return the raised coins to the original participants and check them one by one to prevent any omissions.

If an electronic or written contract is signed, the contract shall be terminated or the liability for breach of contract shall be performed in accordance with the contract agreement. Please note that we have repeatedly reminded that "significant policy changes" that make it impossible to achieve the purpose of the contract do not constitute "force majeure" as stipulated by the law.

Therefore, the contract must stipulate that "when there is a change in regulatory policy that affects the realization of the purpose of the contract, both parties or one party may terminate the contract and no longer bear other obligations arising therefrom." I wonder if your legal personnel have listened to this and put it on paper.

In addition, it is necessary to distinguish that the "private placement" of the agency platform is not "private investment" in the true sense, but mostly VIP marketing. For the contracts or de facto contractual relationships (agreement reached through behavior) reached under the so-called private placement, it is necessary to examine "whether the number of people is less than 200" and "whether it does not meet the conditions for public issuance in the Securities Law", etc.

2. The entire process of raising and issuing “native currency” has been completed, but unused assets are sealed

For issuers that have completed their ICO but have not yet enabled the “raised tokens for fiat currency”, we recommend the following:

(1) Return the raised Bitcoins, etc.;

(2) The issued native tokens will be withdrawn. If they have been listed on an exchange, they will be handled separately.

(3) Actively disclose information related to the authenticity of the project, such as: the current status of the issuer (not going abroad & not subject to border control), project progress, source of project funds (issue an "Audit Report" when necessary), project operation status, etc.

(4) Clean up old contracts and gradually “clear out” ordinary natural persons among the original participants through friendly negotiations;

(5) The feasibility of blockchain application projects shall be re-evaluated, and a professional organization shall issue a "Feasibility Study Report" with recommendations and the risk of project failure.

(6) Sign new contracts, find professional investors or PE, VC, and sign contracts with qualified investment institutions;

(7) Handle other post-event matters.

3. The entire process has been completed and the token has been listed on the exchange

In addition to signing the six mitigation measures, please stop trading the tokens that have been listed on the exchange in a timely manner. Under the premise of protecting the interests of investors, we will use the "privatization" process of listed companies to properly explain to all parties, ensure the emotional stability of the participating groups, and reassure the regulators.

The project issuer and its directors, supervisors and senior managers can adopt the "tender offer" method to stipulate that a certain token will be repurchased at a certain price before a certain time. The token holders voluntarily declare, sign a contract and go through the public announcement procedures at a certain time point. For holders who do not want to be tendered, they can adopt a separate negotiation method and sign personalized contracts one by one. In short, the contract purpose of the participants must not be frustrated.

4. The whole process has been completed, the project has been launched, and some tokens have been exchanged for legal currency

For domestic users who have used the tokens to convert them into legal tender, the difficulty of handling them has increased dramatically. We try to give some suggestions for reference only:

(1) Issue an audit report to ensure that every penny in and out is clean;

(2) Publicizing relevant documents: the full text of the audit report and the overall picture of the project progress;

(3) Prepare a detailed feasibility report of the blockchain application project + a copy of the signed order;

(4) Report the actual status of the project to the financial regulatory authority in the place of registration;

(5) Actively participate in self-regulatory organizations under the guidance of various regulatory agencies;

(6) Guide token participants to exit the market in a safe manner;

(7) Other measures that can prove one’s innocence.

5. The particularity of international projects

For some ICO projects that originated in China and are heading global, the actual controllers or main participants should avoid frequently carrying funds and tokens out of the country to avoid accidental damage.

For projects originating from overseas and conducting ICO in China, it is recommended to close public promotions such as conference marketing and WeChat marketing.

At the same time, international projects should pay attention to "anti-money laundering" and "anti-terrorist financing" and other work to avoid legal risks.

To sum up, we should seek truth from facts, solve problems properly, talk less about attitudes and consider more comprehensive operations in practice.

ICO’s attitude towards accepting supervision is worthy of recognition. We also hope that participants, initiators, and third-party platforms can treat it rationally, handle it prudently, minimize the social impact, and while actively accepting supervision, participate in maintaining the stability of the financial market and protecting the legitimate rights and interests of financial consumers.

(Source: Dacheng Law Firm, Author: Xiao Sa, Editor: Yang Lidong)