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What We Can Learn From the SEC's Lawsuit Against Elon Musk

What We Can Learn From the SEC's Lawsuit Against Elon Musk

UPDATE: Charges against Elon Musk have been settled. Highlights of the settlement include: "Musk will step down as Tesla’s Chairman and be replaced by an independent Chairman. Musk will be ineligible to be re-elected Chairman for three years; Tesla will appoint a total of two new independent directors to its board; Tesla will establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications; Musk and Tesla

What is a Security? A Concept You Must Understand if You're Raising Money

What is a Security? A Concept You Must Understand if You're Raising Money

If you are raising money for startup and especially if you are a blockchain startup intending to sell your company’s native tokens to raise money, you must understand what a security is and whether you are selling a security. If you are selling a security, you must register with the SEC or find an exemption to registration. What is a Security? Section 2(a)(1) of the Securities Act of 1933, which defines what a security is, lists a wide range of instruments that are considered

What is a Security Token Offering or STO? How Do You Structure an STO?

What is a Security Token Offering or STO? How Do You Structure an STO?

Lately, there has been an increased interest in security token offerings or “STOs” for blockchain startups looking to raise capital. STOs are a response to initial coin offerings or “ICOs” that were popular last year. ICOs Were the Precursors to STOs What is an ICO? In an ICO, blockchain startups raised money by issuing and selling “utility tokens.” These tokens were meant to be used to purchase the issuing company’s goods or services. Some of these tokens were highly liquid

How to Structure Your Token Sale (ICO) to Allow All U.S. Investors to Invest

How to Structure Your Token Sale (ICO) to Allow All U.S. Investors to Invest

Token sales or initial coin offerings (“ICOs”) were once regarded as a way to make investment opportunities available to mainstreet investors and to distribute wealth to them. By selling blockchain tokens, token issuers sought not only to raise money for their blockchain projects, but also to build a community. For a brief time, it was rumored that sales of “utility tokens” are not regulated by the SEC or that the SEC would only target issuers that were attempting to defraud

How to Do a Compliant ICO— Part 2

How to Do a Compliant ICO— Part 2

Blockchain companies once believed that as long as they offered “utility tokens” and did not attempt to defraud their purchasers, they were exempt from federal securities regulation. A utility token is a token that is meant to be used for consumption, such as to access a company’s goods or services. Although a utility token may not be a security, the facts and circumstances surrounding the offer and sale of that token will determine whether the securities law apply. When the

How to Do a Compliant ICO — Part 1

How to Do a Compliant ICO — Part 1

Today, blockchain startups are finding themselves in a similar position as traditional startups. That is, they must create products that are attractive to consumers and convince investors to invest. In the blockchain space, startups now find that in order to secure funding, they must create tokens that are both attractive to investors and customers alike. While this is good for creating blockchain products that solve actual problems, founders may find themselves selling token