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Financial Services Law Insights and Observations

SEC issues no-action letter, permitting offering and selling of “tokens” without registration

Securities SEC No Action Letter Initial Coin Offerings Fintech

Securities

On April 3, the SEC issued a no-action letter to a Delaware-based airline chartering services company not recommending enforcement action for offering and selling “tokens” without registration under the SEC Act. According to the letter, the SEC relied upon the company’s counsel’s opinion, which assured that consumers are purchasing the tokens solely for prepaid “air charter services and not for investment purposes or with an expectation to earn a profit,” in determining that the “tokens” were not securities. Additionally, the SEC’s relief considered numerous other factors such as: (i) the platform for conducting the sale of the tokens will “be fully developed and operational” at the time any tokens are sold and funds derived from token sales will not be used to develop the platform; (ii) consumers will be able to immediately use the tokens for their intended functionality (i.e., to purchase air charter services) at the time of sale; (iii) the company will restrict the transfer of tokens to company wallets only and not to external wallets; (iv) the tokens will be sold for one dollar to be used solely on the platform to purchase air charter services, and will be treated as having a value of one dollar; (v) if the company offers to repurchase tokens, it will do so at a discount to the face value of the tokens that the holder seeks to resell to the company, unless a court orders the company to liquidate the tokens; and (vi) the tokens will not be marketed in such a way that there is a perceived potential for an increase in the token’s market value.

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