We can advise on whether your token passes the Howey Test and whether you must register with the SEC. It may be possible to structure your offering and avoid registration by either failing the Howey Test or following Regulation S to avoid US jurisdiction.
Our attorneys can also assist you with other securities regulatory matters such as IPOs, Regulation A, D, and S Offerings, and Special Purpose Acquisition Companies (SPACs). If you are an entity looking to raise capital from the public, Kelman PLLC can assist you at every stage of the process, from drafting/reviewing offering materials and/or disclosures, to making filings with the SEC.
We can advise whether your token offering needs to be registered as a security, assess changes to be made, and provide our written opinion.
What we do:
We investigate your project’s social media history, analyze your whitepaper and your token-economics structure, and any other area that may be of importance to investors.
We will provide an honest appraisal of the situation, the risks you face, and the best way to protect against them before they become an issue.
Where you are able to make the suggested changes we advise you to implement, we may issue a written opinion as to your status under the Howey Test.
Only a court of law can determine with finality whether you pass the Howey Test. We will help you to identify the line where tokens become securities and provide our written opinion.
Frequently asked questions:
The Howey Test is used by courts to determine whether an investment product is a regulated securities instrument. If your token passes the Howey Test, it is deemed to be an “investment contract” under US securities law and must comply with a wide range of laws and regulations before it can be sold to investors. Because compliance with US securities laws is cumbersome and expensive, with high penalties for non-compliance, it is important to determine whether you are a security before raising funds by selling tokens.
Yes. Even if you have no interest in selling to US Persons, US long arm jurisdiction is so expansive that you may trigger it without intending to. It is therefore important to ensure that your token is either not a security, or that you completely avoid US jurisdiction. In either case, you should engage US counsel to ensure your interests are protected. Additionally, major digital asset exchanges will want to see that your took your compliance obligations seriously. In particular, US exchanges will need to ensure that your token is not a regulated security before they list it. Regardless if you are based offshore, compliance with US securities laws is required if you plan to sell to US Persons, market your product in the US, or seek a listing on a US exchange.
It is doubtful whether you should sell tokens to US Persons or within the US at the present time. We are closely monitoring the situation and the SEC’s current policy of “regulation by enforcement”. The SEC does not make the law, but they can enforce it. But because the present state of US securities law is not sufficiently clear, the SEC has adopted an expansive view of securities laws and reserves the right to bring legal action to enforce their view. However, while the SEC may opine that a particular token is a security, this does not make it so. The SEC must first bring legal action against the token issuer for violation of the securities laws and prove their case in court. But because fighting the SEC is expensive and time consuming, litigating is not a sensible option for many token issuers and they choose to settle or cancel their offering instead. If you are seeking to conduct a token offering, it is advised you engage competent counsel to navigate this process.