15 depending on how decentralized the network on which the token is used becomes. Director Hinman stated: “If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract.” Director Hinman elaborated by explaining that “when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede,” and as the network becomes decentralized, “the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.” Rensel v. Centra Tech, Inc., et al., Case No. 17- cv-24500-RNS (S.D. Fla. June 25, 2018) Centra Tech, Inc. (“Centra Tech”) billed itself as “the world’s first debit card that is designed for use with compatibility on 8+ major cryptocurrencies blockchain assets.” In particular, Centra Tech proposed to be the first company to provide a bridge between the cryp- tocurrency industry and the general retail world by allowing individuals to pay for goods and services with cryptocurrency through a common debit card. Between July 30, 2017 and October 5, 2017, Centra Tech con- ducted a token sale to raise capital for further devel- opment of the Centra Debit Card and Centra Wallet. It also claimed to be planning development of an online marketplace referred to as cBay. During its token sale, Centra Tech offered a token to the public that would be necessary to use the Centra Card or Centra Wallet. Criminal charges have been filed against Centra Tech’s founders, and the SEC has filed an enforcement action against the founders and/or officers of Centra Tech, alleging securities (and other) fraud arising out of the token sale. The SEC also recently settled charges against professional boxer Floyd Mayweather, Jr. and music producer Khaled Khaled (a/k/a DJ Khaled) in November 2018 for failing to disclose payments that they received for promoting Centra Tech’s token sale, in violation of Section 17(b) of the 1933 Act. Meanwhile, participants in the sale filed a securities class action against Centra Tech and its officers and founders, alleging that the Centra Tech token sale was an unregistered offering and sale of securities in violation of Sections 5 and 12(a) of the 1933 Act, and that the individual defendants were liable as control persons under Section 15 of the 1933 Act. Plaintiffs moved for a temporary restraining order to, among other things, prevent defendants from transferring or dissipating the token sale proceeds. Defendants dis- puted that the Centra Tech token was a security but did not raise the argument for purposes of the motion. The Magistrate Judge concluded that the Centra Tech token was an investment contract and, therefore, a security under the federal securities laws. Specifically, the Mag- istrate Judge concluded: “The Plaintiffs’ investment of assets, in the form of Ether and/or Bitcoin, satisfies the ‘investment of money’ prong for an investment con- tract.” As to the second prong of the Howey test (com- mon enterprise), the Magistrate Judge explained: “The fortunes of individual investors in the Centra Tech ICO were directly tied to the failure or success of the prod- ucts the Defendants purported to develop. An individ- ual investor could exert no control over the success or failure of his or her investment. Thus, the Plaintiffs have established the existence of a common enterprise.” Although the Magistrate Judge did not squarely focus on whether token purchasers expected to profit from their purchases, the Magistrate Judge concluded that the tokens also satisfied Howey’s third and fourth prongs (expectation of profits based solely on the efforts of others) because the entire enterprise that Centra Tech “purported to develop was entirely de- pendent on the efforts and actions of the Defendants.” Because the tokens were not registered and did not qualify for an exemption from registration, the Magis- trate Judge concluded that plaintiffs had established a probability of success in proving that the token sale constituted an unregistered offering of securities in violation of the securities laws. Because plaintiffs also showed that they would suffer irreparable harm if the temporary restraining order were not granted, the Magistrate Judge recommended that the temporary restraining order be issued. Subsequently, the district court adopted the Magistrate Judge’s report and recommendation to the extent that it pertained to funds raised in the token sale. Plaintiffs filed an amended complaint in October 2018, alleg- ing violations of Section 5 and 12(a) of the 1933 Act and Section 10(b) and Rule 10b-5 of the 1934 Act, and certain defendants moved to dismiss on December 21, BLOCKCHAIN, TOKEN SALES, AND SEC GUIDANCE GOODWIN