United States: Subject To Strict Conditions, SEC Agrees That "Tokens" To Pay For Services Are Not "Securities"

The SEC Division of Corporation Finance granted no-action relief to an airline chartering business incorporated in Delaware from the registration requirement relating to offering and selling "tokenized" jet cards. The SEC relied on the company's representations that the subject "tokens" are not securities.

The SEC's relief was also subject to numerous additional representations. In particular, the SEC noted that:

• the platform on which the tokens would be used had already been constructed, thus, revenues from the sale of the tokens were not being used to build the necessary technology;
• the tokens would be sold for one dollar and could be used solely on the platform to purchase air charter services and, in any such purchase, would be treated as having a value of one dollar (thus, it would be impossible to profit from a purchase of the tokens, which was likely a very key point of the analysis); and
• security measures around the tokens and platform will allow the chartering business (and thus the government) to know the identity of any user of the tokens.

Commentary / Steven Lofchie

The incoming no-action letter (which doubtless was negotiated with the SEC and is consistent with the SEC's new framework for the analysis of digital assets) seems to concede - without argument - that the tokens "may" constitute a "common enterprise," though it is not obvious that it does.

The issuer can afford to concede on this point because its "real" argument is that there is no expectation of profit from a customer's purchase of the assets. The customer is simply buying for one dollar a digital asset that he expects to use to purchase services costing one dollar, and there is no possibility that the digital asset will ever be worth more than one dollar as the platform will always be willing to sell an additional token for one dollar. Essentially, the tokens are being used as an alternative to wire transfers of cash or credit card payments.

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