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SEC Grants No-Action Letter Finding Certain Tokens Are Not Securities and Publishes Framework on Investment Contract Analysis

by   |   April 3, 2019

Wow, it finally happened. The SEC granted long awaited guidance on when tokens are not securities in the form of a no-action letter.  The no-action letter finds the specific tokens at issue were not securities because:

  • TKJ will not use any funds from Token sales to develop the TKJ Platform, Network, or App, and each of these will be fully developed and operational at the time any Tokens are sold;
  • The Tokens will be immediately usable for their intended functionality (purchasing air charter services) at the time they are sold;
  • TKJ will restrict transfers of Tokens to TKJ Wallets only, and not to wallets external to the Platform;
  • TKJ will sell Tokens at a price of one USD per Token throughout the life of the Program, and each Token will represent a TKJ obligation to supply air charter services at a value of one USD per Token;
  • If TKJ offers to repurchase Tokens, it will only do so at a discount to the face value of the Tokens (one USD per Token) that the holder seeks to resell to TKJ, unless a court within the United States orders TKJ to liquidate the Tokens; and
  • The Token is marketed in a manner that emphasizes the functionality of the Token, and not the potential for the increase in the market value of the Token.

Technically no-action letters are applicable only to the recipients and are not binding on courts.

At about the same time, the SEC also published a Framework for “Investment Contract” Analysis of Digital Assets. The framework is not intended to be an exhaustive overview of the law, but rather, an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset.  This framework represents Staff views and is not a rule, regulation, or statement of the Commission.  The Commission has neither approved nor disapproved its content.  This framework, like other Staff guidance, is not binding on the Divisions or the Commission.