Securities Litigation

Late last week, the SEC issued a no-action letter widely hailed as its first on a blockchain-based digital token for private jet services.  In its TurnKey Jet letter, the Commission Staff indicated it would not recommend enforcement action over the operation of a private, permissioned, centralized blockchain network and smart-contract infrastructure for clearing and payment using a utility-token effectively functioning as a pre-paid jet card (or streetcar token).

See TurnKey Jet, Inc. (Apr. 3, 2019), here.

And the request, here.

CoinDesk reports that the no-action process took almost a year, despite the most recent request letter’s April 2, 2019 date, here.

The Commission also issued an expanded exposition of its standard Howey evaluation of digital-asset offerings, “Framework for ‘Investment Contract’ Analysis of Digital Assets,” here.

The expanded guidance isn’t so much new as it is a more granular view of how various operational characteristics of digital-asset offerings fit the Howey analysis (or don’t).  Perhaps more significantly, the guidance lists “Other Relevant Considerations” setting out characteristics that militate against a finding that a crypto-coin is a security.

But the Commission long ago took a no-action position on a token plan under which intermediaries purchased tokens for 3% face value for secondary distribution at par with each USD retail purchase.  The token holders then could redeem tokens at 2.5% face value, with the token system operator retaining 0.5% for operating the system.  The SEC issued that Kash Koin no-action letter 43 years ago, relying on its trading-stamp program no-action position from 1958.  See Kash Koin Enterprises, Inc., 1976 SEC No-Act LEXIS 2312 (Sept. 30, 1976), citing Release No. 33-3890 (Jan. 25, 1958).  Kash Koin:  An old-school token issue.

The technology is new; the analysis, not so much.