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    Finance (Tokenization)

 

  • Consultation for all forms of tokenization (the process of developing a virtual token on a blockchain to represent a fractional ownership of a real-world asset).

 

  • Consultation regarding the advantages of tokenization, such as such as access to virtually unlimited domestic and international capital investment by a virtually unlimited pool of potential investors through listings on various cryptocurrency exchanges, fractionalization of ownership, increased liquidity, reduced barriers to investment by individuals (whether accredited or not), relative security, relative transparency, simplified investor management.

 

  • Monitoring of the domestic and international statutes, rules and regulations involving federal and state securities, anti-money laundering (AML), broker-dealer, consumer-protection, know-your-customer (KYC) and taxes.

 

  • Assistance for consumer token offerings (CTOs), digital security offerings (DSOs), initial coin offerings (ICOs), security token offerings (STOs) and similar complex financial transactions to tokenize assets such as debt instruments, equity instruments, fund interests, real estate.

 

  • Familiarity with various security token design frameworks, such as the token canvas (TC), token utility (TU), token utility canvas (TUC), for use as guidance to avoid the inclusion of characteristics that could potentially support the conclusion that the token is a security, thus conflicting with the “Howey” test (Securities and Exchange Commission v. W. J. Howey Co., 328 U.S. 293, 1946).

 

  • Structuring of STO security tokens such as asset-backed (representing ownership of a tangible asset such as real estate), debt (such as crypto bonds), equity (contributions of cash, fine art, jewels, objects – such as vintage cars or luxury yachts – precious metals), fund (representing an ownership interest in an external fund such as a real estate fund or venture capital fund), utility (representing functions on a virtual platform), but mindful of potential security token limitations, such as the number of allowable investors, raised capital restrictions, resale restrictions, risks of trading on various domestic and international platforms.

 

  • Organization of the STO, for example as a fund, hybrid, special purpose vehicle (SPV), trust, and consideration of avoiding registration with the Securities and Exchange Commission (SEC) by qualifying for an exemption under Regulations A+ – from the Jump Start Our Business (JOBS) Act Title IV – for US or Canadian companies to raise up to $50M per year from an unlimited number of investors (whether accredited or not), CF (crowdfunding) up to $1.07M, D (for private placements for accredited investors only), S (a "safe harbor" provision that defines the circumstances under which an offering of securities is deemed executed in a foreign country and so is therefore not be subject to the Section 5 registration requirements of the 1933 Securities Act).

 

  • Familiarity with Regulation A+ limitations, such as filing SEC Form 1-A, preparing the offering circular, complying with the SEC qualification process until the SEC issues a notice of qualification, excluding asset-backed securities or fractional undivided interests in oil, gas or other mineral rights, subject to state “blue sky” laws for Tier 1 (up to $20M per year but no financial audits), financial audits and ongoing post-offering reporting requirements for Tier 2 (up to $50M per year, but state “blue sky” laws are preempted, and non-accredited investors can only purchase securities valued up to 10% of their net worth), but both Tiers allow issuers to solicit interest in the potential offering from the general public before or after the filing of the offering statement, subject to disclaimers.

 

  • Assistance with obtaining federal and state registration to operate as an alternative trading system (ATS) – or if not, then registration as a national securities exchange (NSE) or qualification for an exemption from NSE registration – such as registration with the SEC as a broker-dealer, becoming a member of a self-regulatory organization (SRO) such as the Financial Industry Regulatory Authority, Inc. (FINRA), filing an extensive initial operating report (SEC Form ATS) and having an ongoing compliance program to maintain the ATS and broker-dealer operations.

 

  • Assistance with ATS registration functions, such as attending the FINRA pre-membership interview for the client, assistance in establishing relations with banks and clearing agents, communicating with the SEC as required, preparation of alternative self-clearing ATS operational structures, preparation of required documents – such as anti-money-laundering (AML) and know your customer (KYC) policies and procedures, detailed business plan and other required operational and financial disclosures and procedures, Form NMA (the FINRA New Member Application), SEC Form ATS, state registration and filings in all US jurisdictions and territories – sourcing a chief compliance officer.

 

  • Consultation regarding broker-dealer compliance, due diligence, exemptions and registration requirements (similar to ATS registration requirements) for security token issuers and their agents.

 

  • Consultation regarding obtaining federal and state Money Transmitter Licenses (MTLs) for those who may accept, hold or transmit digital currency and fiat (government-issued currency that is not backed by a such as gold), so they can operate as Money Services Businesses (MSBs).

 

  • Compliance with National Automated Clearing House Association (NACHA) ACH bulletins, rules, practices, procedures and protocols, updated constantly in response to advisory rules, guidelines and regulations relating to financial transactions issued by regulating authorities such as the CFPB, CSBS, FinCEN, FFIEC, FDIC, FRB, OCC, OFAC and others.

 

  • Assistance with MTL registration activities, such as maintenance of permissible investments, obtaining security (such as a surety bond), payment of application fees, preparation of a business plan and a compliance program registration with the Financial Crimes Enforcement Network (FinCEN), review of background checks, minimum net worth review.

 

  • Consultation regarding obtaining the New York State (NYS) BitLicense, from the NYS Department of Financial Services (NYDFS) which is required for anyone who engages in any virtual currency (any type of digital unit that is used as a medium of exchange or a form of digitally-stored value) business activity within NYS, such as buying and selling virtual currency as a customer business, holding, storing or maintaining custody or control of any type of virtual currency on behalf of others, performing exchange services as a customer business or controlling, administering or issuing any type of virtual currency.

 

  • Assistance with required BitLicense detailed documentation, such as affidavits and questionnaires, background checks for all principals and identified agents, complete information about directors, principal officers, principal stockholders and principal beneficiaries, copies of any other agreements the applicant has entered into (or will enter into) in connection with the virtual currency business activity, corporate and personal financial statements, corporate certificate of good standing, corporate formation documents, corporate policies (AML procedures, cybersecurity programs, HR and all other internal policies), description of the proposed, current, and historical business of the applicant, description of products and fee schedule, explanation of the methodology used to calculate the value of virtual currency in fiat currency,  fingerprinting, flow of funds structure, organizational chart, surety bond, templates for all agreements, documents, receipts and disclosures that the applicant plans to issue or use with customers in NYS.

 

  • Consultation regarding the creation and issuance of stablecoins (blockchain tokens corresponding on some proportional basis, often 1:1, to an actual asset – anything of quantifiable corresponding value, whether cash, securities or even a valuable physical object – maintained as collateral for the stablecoin by an agreed-upon an escrow agent responsible for the safe custody of the asset, so the asset may be claimed and redeemed in lieu of the corresponding stablecoin after the claimant’s fulfillment of the required conditions precedent) such as advising on licensing requirements and obtaining the necessary licenses (such as an MSB, MTL, NYS BitLicense), chartering a limited purpose trust company, designing, issuing and trading stablecoins in compliance with US federal and state laws and regulations, drafting, reviewing and negotiating trust, custodial, technology services, corporate policies (such as AML and KYC) and other agreements with third-party providers, establishing relations with major licensed and regulated auditors, banks, custodians and trustees, listing the stablecoins on various digital currency exchanges (DCEs).

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    Last updated 200714_2224

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