Digital Security (Token) Offerings (STOs)
Wolfe Miglio guides its clients through the entirety of their Security Token Offering process. Our knowledgeable and experienced crypto attorneys will assist your project in all parts of the regulatory process. From advising on compliance with U.S. federal and State securities laws and regulations, to assisting in corporate structuring and token economics, we provide an all-in-one legal solution for your STO.
A security token offering refers to the sale or offering of any blockchain-based digital representation of a real-world asset which is considered a security under US law. The “Howey” test, arising from the case Securities and Exchange Commission v. W.J. Howey Co. (1946), and other related case law broadly encompasses the analysis for determining the classification of a digital asset as a security or non-security. Digital assets which meet the definition of a security under U.S. law can be issued to investors as a digital security via a Security Token Offering.
STOs are used for the purpose of issuing equity stock, debt, profit sharing interest, ownership in real property, or any other traditional type of security asset to investors in a digital form; STOs offer the ability for the issuer to easily divide these crypto-assets into tiny, easily trade-able, and highly liquid sub-parts in ways that would otherwise be cost-prohibitive or impossible. STOs give companies greater access to funding and give investors more control over the transfer and ownership of the asset.
Security Token offerings have become a significant and meaningful way for private companies to raise capital by taking advantage of the inherent properties of assets on the blockchain, such as fractional ownership, increased liquidity, and transparency. There are, however, a significant number of considerations which must be accounted for in the offering of a security token. Our competent STO lawyers can advise and help you to navigate issues such as Anti-Money Laundering/Know Your Customer (AML/KYC) requirements, restrictions on resale, token compensation packages, discounts and bonuses, referral programs and finders fees, corporate structuring, Money Service Business registration and Money Transmitter Licenses, and more.
For any STO token to be sold or offered to U.S. persons, the offering must either be registered with the SEC, or qualify for an exemption under U.S. securities law. Options including and excluding appropriate exemptions still require very careful consideration of Securities laws, especially from an operational standpoint. Our STO attorneys can help you to determine whether or not your STO qualifies for an exemption under U.S. law and assist in your registration and/or necessary filings with the SEC so that you can successfully and compliantly grow your project.
Wolfe Miglio is intimately familiar with the common hurdles and pitfalls of an STO, and strongly recommends that businesses do not try and interpret U.S. federal securities laws themselves without the advice and opinions of expert legal counsel. Wolfe Miglio can advise you on how to conduct both your offering and business operations to conform to U.S. securities laws in a way that is easy to understand.
We have assisted clients with:
- SEC filings
- Token analysis
- Corporate structuring
- AML/KYC planning and structuring
- Drafting of key offering documents (PPM, Subscription Agreements, etc.)
- Post-STO considerations
- Regulatory compliance
- Banking, OTC and liquidity
Our STO attorneys can help you to navigate the world of legal regulations for projects in the United States and throughout the world. Cryptocurrency projects and security token offerings from over 20 countries have trusted us to guide them to success. From real estate tokenization to precious metal ownership, and social media platforms to buying cars on the blockchain, Wolfe Miglio has overcome a diverse array of challenging and novel legal issues.
We are the crypto-community’s lawyers and we can’t wait to see how we can help you change the world.
Utility Token Offerings
Wolfe Miglio assists clients with Utility Token Offerings, which very often includes cross-jurisdictional and international legal considerations. Projects offering a utility token often present unique problems as they may qualify as a “utility token” in their home jurisdiction but can very easily qualify as a security in the United States. It is important to realize that the United States does not distinctly recognize “Utility Token” as an official asset classification, and serving a utility may not exempt a project form needing to comply with U.S. securities laws. Wolfe Miglio and its global team of crypto attorneys advises clients on ways to structure their offering so as to comply with United States securities laws, all while considering possible consequences in their home jurisdictions.
Projects offering a Utility Token from their home jurisdiction may be able to sell their token or coin and raise capital in the United States market without compromising any laws in their home jurisdiction. Such a path involves very careful consideration of applicable securities laws and may include specific restrictions on U.S. investors and special considerations for U.S. regulations. This should not be done without the guidance of an experienced and competent legal team. Wolfe Miglio’s team of cryptocurrency attorneys will be able to advise you and your project on applicable regulations and the appropriate course of action to best support your goals and grow your project.
Initial Coin Offerings (ICO)
In an initial coin offering (ICO), digital tokens or cryptocurrencies are offered to investors in exchange for currency used to grow the project from its beginning stages. ICOs earned a bad reputation between the years of 2016-2018 due to large number of ICOs that raised a significant amount of capital but yielded no results, and scam projects that caused financial ruin to trusting investors. Wolfe Miglio works with projects to assist with transparency and regulatory compliance in order to complete a successful and legitimate ICO, and prides itself on its efforts to repair the ICO’s reputation as a legitimate and viable way of creating valuable economies.
Initial Coin Offerings are generally considered to be securities offerings under United States law, and as such many projects have gone awry by mistakenly or purposefully ignoring U.S. securities regulations under the incorrect assumption that their token is not a security. Not all tokens fit the definition of securities, but precautions should be taken to comply with applicable laws and regulations. Our ICO attorneys can assist you with a comprehensive analysis of your token to determine whether your digital asset is likely to be deemed a security, and what regulations and laws your project should be observing, as well as best practices for complying with laws pertaining to investor money, regulatory filings, and blockchain operations.
ICOs generally require the same level of regulatory compliance in the United States as Security Token Offerings; this includes SEC registration and/or exemption filings, appropriate offering documents, AML/KYC protocol development, resale restrictions, accredited investor verifications, and many others. These considerations are not only necessary for compliance with U.S. governmental and regulatory bodies, but are also invaluable for investor confidence.
Unlike Security Token Offerings (STO), Initial Coin Offerings (ICO) are not backed by real world assets. For example, while a security token offering may wish to sell a token which represents fractional ownership of an apartment complex, an ICO is more likely to represent a credit or utility on a project’s platform. However, like security token offerings, ICOs are typically required to observe the same standards as STOs when dealing with the SEC or U.S. investors. All cryptocurrency projects, especially ICOs, should consult with experienced legal counsel to determine what documents, filings, or restrictions are necessary to garter investments, as well as how much investment money may be taken and by whom those investments may come from.
Our cryptocurrency lawyers can help you with the legal aspects so that you can focus on growing your project.
Exchange/Launchpad Offerings (IEO)
Initial Exchange Offerings (IEO) have become the newest, and one of the most popular, methods of conducting a token offering. In an IEO an exchange or Launchpad program will effectively conduct the operation of the offering on behalf of the project by injecting the token into the exchanges ecosystem and offer one or more trading pairs via which the token can be traded freely by the exchange’s users on the exchange’s platform. This allows for a significant portion of the token supply to immediately be put into the hands of the community, and the project receives a portion of the funds raised from the initial sale of the tokens on the exchange.
IEOs offer a significant advantage over other offering types since it allows projects to quickly access an ecosystem of active, trading users on an exchange platform and quickly acquire contributions form the sale of its token or coin.
One of the most beneficial aspects of conducting an Initial Exchange Offering is that it grants a substantial amount of legitimacy to a project and to a token. Potential investors tend to see projects offered on an exchange as a safer and more stable investment because the tokens are guaranteed to be traded on at least the IEO exchange, where as projects doing ICOs and STOs run the risk of never being listed, and so investors are generally more willing to contribute to an IEO.
This process can quickly become very complicated both from operational and compliance standpoints; any liability for securities law violations caused by an exchange’s mishandling of an IEO can very easily be transferred to the project itself. We strongly advise that any project considering an IEO retain legal counsel familiar with securities laws to help guard their best interests and minimize or eliminate criminal liability in this very new method of raising funds.
Due to the speed of the sale and diffusion of tokens in an IEO, regulatory considerations must be had and protocols and procedures should be developed PRIOR to the launch of an IEO. A project should not trust that an exchange has already considered all legal ramifications in conducting an IEO, as most crypto exchanges have a long and famous history of operating outside of the law and correcting their mistakes only after they are pressured by regulatory agencies.
Some potential remedial actions include geo-fencing of tokens, wallet transfer restrictions, exchange restrictions, and offering disclaimers. Many exchanges will not allow tokens meeting the definition of a security to conduct an IEO on their platform due to potential backlash from regulatory agencies around their world, and so it is important for projects to retain legal advice from crypto attorneys who are familiar with the global regulatory climate to determine if this course of action is an option.
Of all the offering methods, IEOs are the most risky, most complex, and most likely to incur liability. It is important to tailor specific policies and procedures to prevent liability for you and your team when pursuing an IEO on an exchange.
Wolfe Miglio can assist in the analysis and regulatory preparation of your token for an IEO and advise on pragmatic changes that could be made to your token/platform/wallet to better account for compliance and mitigate risk to your project and your team.