You may have already heard of the big news from the SEC last week. First, the SEC gave a green light to a company that is looking to do an ICO in the form of a "no-action letter" and second, the SEC published a plain English framework for companies looking to do ICOs. This article will focus on the no-action letter.
The SEC’s no -action letter to a company named, TurnKey Jet, Inc., is the very first no-action letter that the SEC has ever issued to a company looking to do an ICO. Specifically, the SEC indicated that they would not take enforcement action against Turnkey if they conducted their token sale as set out in their request for a no-action letter, giving Turnkey the green-light to conduct their ICO as proposed.
TurnKey Jet is a company that flies people around in private business jets. They want to create a platform where consumers can exchange Turnkey Jet tokens for flights. This is like a business jet card program that exists today.
How the Tokens Work
There will be consumers, who will be purchasing flights from the platform and providers, which will be providing flights on the platform. The three groups of providers are as follows: TurnKey Jet, other flight carriers, and brokers, which will facilitate flights between consumers and carriers.
TurnKey Jet will be the manager of the platform and the token program. Anyone that wants to use the TurnKey Jet platform must buy tokens and pay a subscription fee. The proceeds of the token sale will be held in escrow until the consumer decides to redeem their tokens by buying a flight. At this point, Turnkey will release the funds to the provider of the flight, which could be itself, another flight carrier on its platform, or a broker.
The tokens will always be valued at $1USD per token, meaning the value of the tokens purchased do not fluctuate. However, the cost of the flights may fluctuate because of external forces affecting the price of flights.
Other measures are also taken to ensure that the tokens don’t fluctuate in value and purchasers cannot reasonably expect to make a return on an investment from their purchase:
Token holders can only exchange tokens between consumers, carriers, and brokers on the platform, but the tokens can never exit the platform;
TurnKey Jet will not use the funds to develop their platform, app, or token or do anything with the funds, except redeem tokens for flights;
The platform, app, and tokens required for the Turnkey Jet tokens to be used will be fully developed and functional when TurnKey Jet sells the tokens, meaning that a buyer will be able to redeem his or her tokens for a flight immediately after purchase;
All funds will be kept in escrow until a consumer purchases a flight and only then will TurnKey Jet transfer the funds out of escrow and to the carrier or broker that delivered the flight; and
Turnkey Jet will take measures to ensure that tokens cannot be transferred outside of their platform.
Based on the facts above, their lawyer gave his opinion that the proposed TurnKey token sale would not be an offer and sale of securities. Under federal securities laws, all offers and sales of securities must be registered or qualify for an exemption. On the other hand, if you’re not offering and selling securities, this doesn’t apply.
The SEC’s Decision
Based on Turnkey Jet’s lawyer’s opinion that TurnKey Jet’s proposed token sale would not be considered the offer and sale of securities and the structure of the token sale as set forth in TurnKey Jet’s request for a no-action letter, the SEC issued TurnKey Jet a no-action letter.
Factors the SEC Deemed Relevant
The SEC called attention to the following features of TurnKey Jet’s proposed ICO in making its decision:
TurnKey Jet will not use the proceeds of the sale to develop the platform, app, network or wallet and that these will be fully functional when the tokens are sold;
The tokens will be immediately usable for their intended function;
TurnKey Jet will not allow the transfer of tokens outside of the platform;
Each token will be valued at $1 and will represent $1 worth of value for air travel from TurnKey Jet’s platform;
TurnKey Jet will only repurchase the tokens at a discount unless ordered by a court to do otherwise;
TurnKey Jet’s will only market the functionality of the tokens and not a potential increase in its market value
A Familiar Framework
If you think this sounds familiar, you’re right. This is the functional equivalent of a store gift card. You can buy a store gift card and you know that the price you paid for the gift card is the exact value on the gift card because it’s not subject to fluctuations. It also can only be used at a single store because it’s not good elsewhere. Stores sell gift cards so people can exchange those cards for goods in the store, they don’t sell them so that they increase in value.
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This article is provided for informational purposes only and should not be construed as legal advice. Read our disclaimer here.