Rule 195 should also apply to blockchain projects that have previously issued tokens
Opened this issue · 6 comments
We feel it is important that Rule 195 apply equally to both new projects commenced after the safe harbor becomes effective, and existing projects that have taken a conservative compliance path and treated their utility-focused tokens as “security tokens” despite having no security-like features such as voting rights or rights to dividends or interest. There is currently no practical way for such projects to build out their decentralized token economy solely with accredited investors, KYC-vetted holders of security tokens. These existing projects have the same need for a three-year period of time for freely-tradeable utility tokens to circulate for their project to fully reach decentralization and functionality.
Given that paragraph (h) of proposed Rule 195 allows projects that have previously issued tokens to take advantage of the safe harbor so long as they comply with the five numbered items of paragraph (a), only a minor change to item (1) of paragraph (a) is needed in our view. Our specific proposal would be to add language to item (1) so that it reads as follows:
(1) The Initial Development Team intends for the network on which the Token functions to reach Network Maturity within three years of either the date of the first sale of Tokens or the date the notice of reliance is filed.
The modification clarifies that even if an initial SEC-compliant SAFT or token offering was conducted over three years prior to the filing of a Notice of Reliance, the first of the five numbered conditions to the safe harbor set forth in paragraph (a) can be satisfied in good faith. Furthermore, it corrects an inconsistency with paragraph (e), which provides that the Rule 195 safe harbor “will expire three years from the date the notice of reliance was filed.”
Wasim: as we have discussed, I strongly agree with the importance of making this change.
Yesterday, I also submitted this proposed change to Commissioner Peirce in the form of a comment letter.
The enactment of proposed Rule 195--as improved through this comment process--would go a long way toward providing regulatory clarity and certainty to this important industry sector, which is currently hampered by a complete lack of specific federal laws, regulations or exemptions.
Wasim, I'm in 100% in support of this minor but important change. I think it is consistent with the intent and rewards (rather, doesn't penalize) those projects that have been "doing the right thing" as the regulatory environment has been maturing
In tech ecosystems, providing a sandbox for new frontier technologies is a necessary improvement in American competitiveness. With the current regulatory and financial ecosystems, the legal ability and opportunities are available to a select few projects. This hinders innovation, entrepreneurs and workers in creating new market opportunities and jobs as well as wealth creation. It cannot be limited to a select set of the American population. That said, with the addition of the language for the proposed Rule 195 as provided by Mr. Ahmad above, will jump start this initiative for all projects that have complied with prevailing guidelines and not just new ones.
Completely agree to this change. Companies that previously issued tokens and followed the conservative path to await for regulatory advise should fall under the Safe Harbor Initiative. It would be a shame to slow down progress for those that followed the cautious path.
I updated the above PR to address this issue more fully; it focuses on the effective date of the rule, rather than the date the safe harbor notice was filed, for two reasons:
- An old project could delay filing the notice to gain extra runway.
- New projects will most likely file their safe harbour notice well in advance of a token sale, to ensure they're not blocked by any legal issues. If the clock starts on the filing date, not on the token sale date, they're significantly disadvantaged.
I updated the above PR to address this issue more fully; it focuses on the effective date of the rule, rather than the date the safe harbor notice was filed, for two reasons:
- An old project could delay filing the notice to gain extra runway.
- New projects will most likely file their safe harbor notice well in advance of a token sale, to ensure they're not blocked by any legal issues. If the clock starts on the filing date, not on the token sale date, they're significantly disadvantaged.
Not sure any existing projects want to delay filing the notice. The prime issue is that existing projects shouldn't be excluded from Safe Harbor because it revolves around token sale date. Existing projects who did security token offerings have suffered from severe restrictions in the promotion and free exchange of their tokens already.