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US SEC Issues First No Action Letter Against A Token Sale

US Securities and Exchange Commission has issued a historic first No Action Letter against the token-sale of a company. And the rationale behind issuance of letter is very important.

April 04, 2019 11:16
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When you think of SEC and ICOs simultaneously, what’s the first thing that comes to mind? Of course, the repeated stance of SEC Chairman Jay Clayton that ICOs are security offerings. However, in a historic first, the same SEC has now assured the investors of a company that the token sale of the company won’t be scrutinized by the commission. In a ‘No Action Letter’ addressed to the investors of TurnKey Jets SEC said that it will not take any enforcement actions against the company. The commission also explained its rationale behind the decision in a lengthy document attached with the letter.

TurnKey Jets is an American startup that offers all-inclusive private jet services. The interesting part of TurnKey’s business is that its official website doesn’t mention anything about its crypto tokens, which are actually an essential part of company’s ecosystem. When SEC released its No Action Letter for the company, its FinHub established in 2018 to address cryptocurrency related issues also explained the whole rationale behind the decision, which can serve as an important asset for future evaluation of such requests. SEC’s Director of Corporate Finance division Bill Hinman said:

“It’s not binding on the rest the commission, but it gives market participants a good idea of how the SEC staff will look at the issue and deal with it.”

There mainly are six points in the No Action Letter of SEC. One of them says that TurnKey has promised to not use the funds raised from token sales to develop its platform, network or applications. Instead, each of them will be completely ready when tokens will be sold. Other five specifications mentioned in the letter of SEC are as follows:

  • The company promised that these tokens will be readily available for purchasing the air charter services of the company as soon as they’re put for sale.
  • The tokens will also not be transferable to external wallets – they’ll be transferable only to the official wallets of TKJ.
  • The tokens will be sold at a fixed price of 1 USD per token throughout their life.
  • If TKJ offers to repurchase the tokens from their investors, it will do so only at a discount price.
  • And finally, the token has been marketed in a manner that emphasizes its functionality instead of the possible future increase in its price.

None of these features are official requirements outlined by the SEC to not identify an ICO as a security, but they’re tailored to address the accusations that are made in media against ICO issuers. You can read the entire No Action Letter here.

In addition to that SEC also published a lengthy 13-page document titled “Framework for ‘Investment Contract’ Analysis of Digital Assets”, which provides even more detailed explanation of how SEC decides which offerings are security token sales and which ones are not. We think that the document will certainly help future ICO holders to ensure that their token-sale is not branded as an unauthorized security offering by the commission, so they should look into it.

Technology and business were my core interests, so it wasn't surprising that I got interested in cryptocurrencies, which operate at the intersection of both these things. Now I live my passion by trading cryptocurrencies and covering Cryptocurrency news. You can connect with me on Facebook to learn more about me. :)

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