Initial Coin Offerings
Blockchain has slowly been taking the business world by storm. Startups, incubators, accelerators, entrepreneurs, venture capitalists, investors and other financial institutions are taking interest into this complex, innovative way of fundraising. Many internet and tech startups are turning to token offerings to raise capital for their businesses or projects, but these companies are not aware of the obstacles they must overcome to ensure a compliant initial coin offering (ICO) and to avoid becoming the next Munchee or Tezos. The experienced startup attorneys at SLG are confident in their ability to successfully help your company navigate the complicated ICO process and to structure your token offering in a risk-adverse, compliant manner.
The regulatory and legal landscape for ICO's is quickly evolving, even lacking little guidance at times, and thus many businesses find themselves facing complex obstacles such as regulatory and legal hurdles like federal securities laws (SEC), state Blue Sky laws, Commodity Futures Trading Commission (CFTC), FINRA, and private plaintiff's bars. Structure Law Groups experienced ICO attorneys assist businesses seeking to hold Initial Coin Offerings with the drafting and development of the crucial legal documents to maneuver through these obstacles and comply with the rules and regulations. Our attorneys work efficiently and diligently to provide clients with a clear and comprehensive overview of the regulatory landscape they are entering.
Tokenomics and the SEC - Token analysis is a complex process that includes taking a comprehensive look at your token offering and determining whether or not your token is a utility token or a security token. If your token is a security token, then your ICO must be structured in a way to comply with federal and state securities laws. As indicated by the SEC, most tokens are securities that must be registered or find exemptions to registrations; however, most startups mischaracterize their token as a utility token and find themselves facing serious legal risk and consequences. The test for analyzing your token is the Howey Test, which is seemingly straight-forward test with many nuances that are often overlook by nonlawyers. SEC regulations are a major threat to ICO's, and it is important to have sound legal counsel to manage this risk.
Whitepapers - A whitepaper is the company's prospectus and marketing to the investor world at large. Well-written whitepapers provide the information and disclosure necessary to be transparent with potential and actual investors in the company's ICO. Failure to include material or important information can result in companies facing significant exposure to individual or class action lawsuits. Some of the information that whitepapers must detail includes topics like the tokenomics, technical milestones, breakdown of use of proceeds, and disclosure of risk factors - these are just a few examples of what should be included in a properly written whitepaper. A token developer should seek out an experienced blockchain attorney to assist in the development and drafting of any whitepapers, as well as they should seek out an attorney for the review of the final product to ensure they are complying with all applicable securities regulations and mitigating
ICO Platform - ICO's are one of the financial innovations stemming from blockchain, which uses revolutionary technology to create an open and secure network to record information. Tokens issued in an ICO are commonly redeemed on the issuers platform to provide the investors with access to the technology and utility created on the blockchain. By issuing the tokens, startups must be conscious of the following:
- KYC/AML Policies - Before any tokens can be issued, a company must know its customer and have a solid, legally compliant anti-money laundering (AML) policy to comply with AML laws. Policies focus on a structure that enables the company to properly vet each potential token purchaser. The ICO attorneys at SLG are well-versed in creating effective an effective AML strategy and then drafting the AML policy that will be the company's guiding document during the ICO.