Reed Smith Client Alerts

On April 3, 2019, the U.S. Securities and Exchange Commission (SEC) took a first step toward providing greater clarity on the key question of how to evaluate whether transactions involving issuance or sales of digital tokens are sales of securities subject to U.S. securities laws and regulations.

Authors: Herbert F. Kozlov C. Neil Gray Ramsey Hanna Maxwell J. Eichenberger

Digital nodes

The guidance came in two parts:

  • First, the SEC’s Strategic Hub for Innovation and Financial Technology (FinHub) published the “Framework for ‘Investment Contract’ Analysis of Digital Assets” (Framework). In a public statement announcing its release, the SEC billed the Framework as 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.” 1
  • That same day, the SEC’s Division of Corporation Finance also issued a response to a no-action request submitted by TurnKey Jet, Inc., (TurnKey), a provider of air charter services. In the first SEC no-action letter addressing a blockchain-based project, the SEC indicated it would not pursue an enforcement action if TurnKey sold a digital token (TKJ) to its air charter-customers, under the circumstances outlined in TurnKey’s letter.

Taken together, these publications provide much-needed guidance in an area of law and technology wrought with uncertainty. This post briefly addresses some of the takeaways from the publications.