Burr & Forman

04.8.2019   |   Blockchain, Blockchain & E-Transactions Law, Blog Articles, Cryptocurrency, SEC

Old Is New: SEC Issues TurnKey Jet No-Action Letter

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: https://www.sec.gov/divisions/corpfin/cf-noaction/2019/turnkey-jet-040219-2a1.htm

And the request, here:  https://www.sec.gov/divisions/corpfin/cf-noaction/2019/turnkey-jet-040219-2a1-incoming.pdf

CoinDesk reports that the no-action process took almost a year, despite the most recent request letter’s April 2, 2019 date:  https://www.coindesk.com/secs-first-crypto-no-action-letter-took-11-months-to-secure

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:  https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets

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.

Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas, and Louisiana. He has over 33 years of experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile.

© 2019 by Thomas K. Potter, III (all rights reserved).

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