Partner Kayvan Sadeghi was quoted on the second of two recent high-profile court rulings determining that cryptocurrency companies Telegram Group and Kik Interactive’s digital offerings violated securities laws because the token sales were never registered with the U.S. Securities and Exchange Commission (SEC).
Both companies sold their offerings through simple agreements for future tokens (SAFT), which operated under the assumption that by the time of delivery, the projects would been developed to the point at which the token distributions would not be considered "investment contracts" and therefore securities under SEC regulations.
Kayvan said, "It's hard to see anyone using the same SAFT concept in light of this ruling. Between Telegram and Kik, the concept of separating the initial sale and subsequent distribution — that bifurcation did not work."
In SEC v. Kik Interactive, the judge found that the sale and distribution of Kik’s tokens, Kin, met all the requirements to qualify as “investment contracts” under the Howey test.
The finding that the sale met the “common interest” requirement is “where the rubber met the road on this opinion,” Kayvan said. The order sets a "relatively low bar for what's required for that element,” he said, adding that the SEC could use the decision to argue for "an expansive view that the token itself should be characterized as a security.”
Kayvan noted that there haven't been many offerings structured like Telegram's and Kik's "for a while now, because the risks have been evident."
"The industry has moved on from this [offering] structure to a large degree," he said.
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