On July 25, 2017, the SEC issued an investigative report, referred to as the "DAO Report," under Section 21(a) of the Securities Exchange Act of 1934, as amended (Exchange Act), alerting market participants that offers and sales of digital assets by "virtual" organizations are subject to the requirements of the federal securities laws. These offerings are typically conducted by organizations using distributed ledger or blockchain technology and are sometimes referred to as initial coin offerings (ICOs) or token Sales. Issuers must register offers and sales of digital assets unless a valid exemption applies. If the offerings are unregistered, issuers could potentially be liable for violations of the securities laws.

The SEC's report was directed towards the Decentralized Autonomous Organization (DAO), which raised almost $150 million in 2016 before the project was hacked and lost over $50 million in digital currency. The SEC wants to make certain that investors are given proper disclosures and that digital assets are subject to regulatory scrutiny.

Securities exchanges that provide for trading in these securities must also register unless they are exempt. The facts and circumstances of each case, including the economic realities of the transaction, will be considered to determine whether a particular transaction involves the offer or sale of a security.