An Important Milestone – First Supervised Security Token Offering

Guest post by Andrey Yanai of Barnea Jaffa Lande & Co.

After a long wait, the US Securities and Exchange Commission (SEC) has permitted a startup company to raise funds from the general public through a supervised security token offering (STO) under Reg A+ regulations. Effectively, this is the first time a public STO was granted regulatory approval in the United States. In light of the great importance attached around the world to the US capital market generally, and the position of the SEC specifically, this is a most significant development.

The Reg A+ regulations allow small- and medium-size companies that are unable to meet the heavy financial burden of an initial public offering (IPO) to raise up to $50 million in a crowdfunding track, under supervision.

Several days ago, the SEC permitted the company Blockstack Token LLC to perform the fundraising. Several days thereafter, the approval of a different company, YouNow Inc, was also reported. The founders of Blockstack said that the cost of the process reached $2 million and that the expected total fundraising amount is $28 million. This is an unusual and non-economical fundraising cost, though it is expected subsequent STO fundraisings will be much more cost-effective.  

This joins a list of other developments in the evolution of blockchain technology as it attempts to adjust to the strict demands of securities law. Among these developments, the Framework for “Investment Contract” Analysis of Digital Assets published by the SEC in April 2019 is worth noting. There, the implementation of the Howey test for digital assets was set forth. In it, the SEC analyzes when a digital asset constitutes an “investment contract,” i.e. a security subject to all the regulatory requirements. While it is true that theoretically the SEC left open the possibility that a certain digital asset would be classified as a “utility” and would not constitute a security, in effect, it seems that almost any offer of tokens meets the Howey test.

Additionally, the desired SEC approval for these STOs comes after a line of aggressive enforcement actions against companies that raised funds through an ICO, culminating in a suit filed by the SEC in June 2019 against the messaging app Kik. According to the SEC, this was a pubic fundraising in violation of federal securities laws.

In conclusion, it appears that while the SEC takes a harsh stance against companies it believes operate in violation of the rules, it is willing to give its official stamp of approval to companies prepared to toe the line dictated by the regulations. 


Andrey Yanai 

Andrey, a lawyer in the firm’s Capital Market Department, specializes in advising private and public companies, with an emphasis on dual companies.

Barnea

Barnea, Jaffa, Lande & Co. is a leading commercial law firm in Israel. We have earned an esteemed reputation for our extensive legal expertise in international activities. More …

The Current State of Reg A+ Investment Crowdfunding

Guest post by  @ CrowdExpert.com

With all the excitement around the big SEC Title III Equity Crowdfunding announcement on Oct 30th it’s easy to overlook the fact that the SEC already enabled a potentially much more powerful set of rules earlier in 2015, which we are only now starting to see the effects of.

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SEC Approves Final Rules for Regulation A+

Guest post by Esuga T. Abaya, Julia D. Corelli, Robert A. Friedel – Pepper Hamilton LLP

On March 25, the U.S. Securities and Exchange Commission (SEC) adopted final rules amending Regulation A to implement the provisions of Section 401 of the Jumpstart Our Business Startups Act (JOBS Act). [1] The new rules confirm most of the rules that had been proposed by the SEC in December 2013.

Regulation A+, as the amendment has been called by market observers, expands the current Regulation A exemptions. All offers and sales require registration of the securities offered under the Securities Act of 1933 (Securities Act) unless an exemption applies. Regulation A is such an exemption and, consistent with the intention of the JOBS Act, is an attempt to make it easier for small businesses to raise capital. By adopting these new rules, the SEC intended to “craft a workable revision of Regulation A that would both promote small company capital formation and provide for meaningful investor protection.”

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