Simply, ICOs allow "investing" and "crowdfunding" without having
to report personal identification or going through legal compliance
systems like KYC/AML, and you are provided a token as a proof of
purchase, thus it is an "illegal security" asset.

When a legally regulated company uses ICOs in order to get capital,
it will only occur for three reasons: (1) that company is stupid and
their CEOs and lawyers have advised them improperly, or (2) that
company is a scam that will eventually run away with the money,
or (3) that company is a front to help launder either ill gotten
cryptocurrencies or dirty money, which will likely also scam
and disappear one day.

In most countries, an ICO token would be interpreted to be a
"security". Any altcoin, can transform into an ICO, when it is
created or directly associated with a legal organization and its
funding (and the corps business is not the token or the chain).
Companies are not allowed to create "securities" without the
oversight and approval by their government's financial
regulators. This is very well known and people who
are shocked by this action (in China now, and the future
actions that are to come in other places) shows blatant
ignorance of the law and how it functions. ICOs are not
the same as Bitcoin and can not function as such.

In theory, there is no valid purpose for ICOs except for legally
regulated companies to violate the law, which is clearly asinine.
A regulated ICO is an oxymoron and in practice is impossible to
guarantee full compliance. So, it is simpler to make ICOs illegal
for businesses, than to attempt to regulate them, since they by
design, facilitate no other function than noncompliance.

IMO, ICOs are only beneficial for the funding and creation of
illegal markets or illegal software. Of course, when this occurs,
majority of those project will be scams as well, but at least
those ICOs are not legal oxymorons like today's version.

Edit: typos