Comprehensive Legal Services for the Blockchain Industry

We regularly provide US and foreign clients with comprehensive legal services, including:

• Digital Securities Offerings.
• Reg D Exempt Offerings.
• Reg S Offshore Offerings.
• Reg CF Retail Investment Crowdfunding Offerings.
• Reg A+ Offerings.
• Tokenized Funds.
• Crypto Investment Funds.
• Digital Securities Exchanges.
• Compliance with the State and Federal Money Transmission Laws.
• Compliance with Anti-Money Laundering and Know-Your-Customer (AML/KYC) Regulations.
• Application for and Compliance with the NY DFS BitLicense.
• Tokenized Employee Incentive Plans and Award Agreements.

Our team follows the latest developments in the regulatory enforcement of digital securities. To learn more about digital securities, check our CrowdCrypto Weekly Newsletter.

Digital Securities Offerings and the JOBS Act

Initial coin offerings (ICOs) have become increasingly challenging and risky in the United States. As the U.S. Securities and Exchange Commission (SEC) has intensified its efforts to crack down on ICOs and the upsurge of consumer fraud schemes, companies are left wondering whether there are compliant methods for conducting a token offering and if so, how

Welcome, Digital Securities Offerings (DSOs)

Digital Securities Offerings allow companies to raise capital for an investment scheme or issue tokens that meet the definition of a security under U.S. securities laws.

For example, digital securities can represent an economic interest in a company, such as shares of capital stock or membership units in an LLC; fund intersts; profit sharing interests; fine art; real estate; precious metals; diamonds; and the list goes on.

Companies looking to conduct a DSO in the United States must determine whether to register the digital securities, or structure the offering under one of the available exemptions from registration. The JOBS Act provides for three potentially useful exemptions for DSOs (Reg CF, Reg A+, Reg D Rule 506(c)), in addition to Regulation S.

What is the JOBS Act?

The JOBS Act was enacted in 2012 and reimagined private capital formation in the United States. It was signed into law by President Barack Obama on April 5, 2012. The JOBS Act provided the framework for overhauling certain elements of existing securities laws and providing new exemptions from registration for fundraisers. Highlights of the JOBS Act include the ability for companies to now “generally solicit” or publicly advertise their offerings (Title II); full blown equity crowdfunding to all citizens under Title III; and a new more workable version of Reg A(Title IV).

What is Regulation D, Rule 506(c)?

Regulation D provides the simplest set of safe harbors to registration when compared to its alternatives (Reg A+; Reg CF). The most commonly utilized rules under Reg D are 506(b) and 506(c), the latter of which allows for general solicitation. Reg D, Rule 506(c), a safe harbor under Section 4(a)(2), has been the most utilized exemption from registration to date for DSOs, likely due to the following factors:

• Issuers can raise unlimited capital on an annual basis from accredited investors under this exemption.
• Accreditation verification service providers make compliance with this exemption simple for issuers and investors.
• Issuance platforms are accustomed to the Reg D exemption and have built compliance checks into their workflows.
• There is no qualification or pre-approval required by the SEC, simply a Form D filing post-launch of the DSO.
• Issuers are exempt from registration and qualification requirements at the state level as securities sold under this safe harbor are deemed “covered securities”. State blue sky compliance, which typically entails notice filings and payment of associated fees, can be satisfied with the support of counsel after the offering commences.

What is Regulation Crowdfunding?

Regulation Crowdfunding (“Reg CF”), is a new securities exemption that enables U.S. start-up companies to raise seed-stage funding from the public. All Reg CF offerings must be facilitated through an online SEC and Finra registered intermediary, which come in the flavors of broker-dealers or “funding portals”. Before launching a campaign on the intermediary’s site, companies are required to disclose certain information about themselves and their offerings in a disclosure document called a Form C. The Form C must be filed with the SEC before the campaign goes live.

Under this exemption, issuers are able to:

• Raise up to $1.07M per 12 month period.
• Accept investments from both accredited investors and non-accredited investors.
• Leverage your funding portal’s network and marketing activities.
• Utilize social media to promote your campaign.
• Openly pitch your DSO fundraising effort at events.
• Simplify investor onboarding with the help of your Funding Portal.

What is Regulation A+?

The Reg A+ mini-IPO exemption (Title IV of the JOBS Act) allows US and Canadian issuers to fundraise from. The SEC adopted the proposed rules March 25, 2015, which earmarked Reg A+ as the first exemption available to issuers seeking funds from an uncapped number of unaccredited investors. The Reg A+ exemption is available to US and Canadian issuers seeking to raise up to $50M in a 12-month period. The rules create a two-tiered approach, where Tier I issuers can raise up to $20M in a 12-month period and Tier II issuers can raise up to $50M.

The Reg A+ securities exemption has limited marketing restrictions post-quaflication and other notable benefits for DSO issuers:

• Immediate liquidity opportunity for investors as securities sold under Reg A+ are unrestricted securities.
• Testing the waters capabilities prior to qualification – DSOissuers may generally solicit interest in a potential offering, both before and/or after the filing of the Form 1-A offering statement, so long as any solicitation materials are preceded or accompanied by a preliminary offering circular.
• Raise up to $50,000,000 in a Tier-2 Offering.
• Working with broker-dealers to provide solicitation and execution support.
• Accept investments from both accredited investors and non-accredited investors
• Utilize social media to promote your DSO.
• Openly pitch your DSO from the stage.
• Simpify investor on boarding with the help of technology service providers, brokers-dealers, and fundraising platforms.
• Sales are permitted after the Form 1-A is declared qualified by a “notice of qualification” by the Division of Corporation Finance.

Our attorneys have extensive experience in representing companies seeking to utilize blockchain technology in conducting compliant DSOs under the JOBS Act exemptions and Regulation S.