Luka Mueller says Current ICO Legal Framework is “Stupid”
Luka Mueller, partner at MME Legal AG in Switzerland, has stated that the legal framework around ICOs has become “stupid”, “inflexible”, and outdated. These comments should not be taken too lightly, considering Mr. Mueller played a key role in developing legal guidelines for ICOs. ICOs have been under attack by regulatory authorities all over the world with countries like South Korea and China attempting ban them completely.
The latest research and findings on ICOs, conducted by Ernst & Young (EY research), reveal that more than 10% of the capital raised via ICOs is either “lost” or stolen. EY research arrived at this conclusion after examining hundreds of ICOs. Research data indicates that around $400 million of the total $3.7 billion raised through ICOs to date was stolen by hackers. That’s a serious problem.
Numerous ICOs Have Been Identifying as Swiss Foundations
Luka, whose MME law firm helped lay the legal groundwork of the largest ICOs in the world, recommends that crypto groups, particularly those engaging US investors, would better serve their clients if they established proper companies instead of Swiss foundations. These “foundations” declare themselves to be non-profit entities, so that they can enter the lesser taxed bracket. Furthermore, the capital raised from ICOs is considered to be a donation. Therefore, there’s no obligation to return it.
Although Mr. Luka thinks that ICOs functioning as non-profit foundations are misrepresenting their business operations, he does suggest that an ICO can establish itself as a foundation if it’s centered around technical experts (instead of investors). Notably, the focus of Mr. Luka’s statements has been around U.S. investors. He asserts,
“If…the background is more an investor environment rather than a technical environment, yes, do all the registrations. If you want to sell it, if you want to be active and actively promoting it in the US, apply U.S. law.”
ICOs are Big in Switzerland, but Not Without Problems
Switzerland has been at the forefront of the crypto-market, given that it’s behind 4 of the world’s 10 biggest ICOs. The main reason behind this might be because the country has a history of maintaining business-friendly regulations and a neutral political outlook. However, money raised by Swiss foundations, particularly those for the Tezos project, which claims to offer a better blockchain than bitcoin or Ethereum, has been widely criticized.
The criticisms of the Tezos project have turned into full-blown class action lawsuits in the United States against the startup’s founders. Plaintiffs allege that Tezos crowdfunding was technically a sale of securities, but failed to comply with the US Securities and Exchange Commission’s (SEC) regulations. Tensions around the Tezos venture escalated after $232 million had been raised through its ICO, but the launch of the much anticipated Tezos network became long overdue. Due to constant ongoing battles between the foundation’s president and its developers, it doesn’t seem likely that the Tezos network will be launched anytime soon.
Given the serious issues and problems with ICOs, Mr. Luka Mueller might be right by referring to current ICO laws as “stupid”. ICOs have certainly managed to create a lot of conflict and controversy. It’s evident that ICOs should not try to market themselves as non-profit foundations. Instead, they should identify as startups focusing on raising the maximum amount of capital to further their agenda, because that’s what they really are.