S.E.C. Rules + Exemptions


Represented B2B / B2C blockchain freelance platform in the process of raising capital through Regulation D and S offerings from U.S. and non-U.S. investors, including review and analysis of the white paper and the project, preparation of the private placement memorandum (PPM), subscription agreements, guidance regarding the process of investor accreditation as well as AML/KYC checks, and filing Form D with the SEC.

Represented a decentralized crypto exchange platform and advised the company regarding the process of raising capital in the U.S. through SEC Regulation A+ and D offerings, including securing money transmitting licenses in all 50 states, preparation of all necessary offering documents to launch token sale in the U.S.

Represented a blockchain based gaming platform in connection with structuring Regulation D and S offerings, including full review of the project, drafting a private placement memorandum and purchase agreement to launch the sale, guidance through the process of verifying U.S. accredited investors and completing KYC checks, and filing form D with the SEC.

Reviewed marketing materials, including the whitepaper, for compliance with securities regulations

Advised companies in the U.S. and abroad on ICOs in the real estate, investment, gaming, media, lending and retail industries

Advised ICO team regarding SEC registration requirements and available exemptions, including the limitations on the amount of investment, advertising and solicitation, investors’ requirements and necessary provisions for the whitepaper

Providing ongoing updates to clients regarding the latest regulatory developments, including relevant releases by the Securities and Exchange Commission (SEC) in connection with regulating existing and new cryptocurrencies and ICOs

Common exemptions from the registration requirement include:

  • Regulation D: The SEC’s Regulation D exempts transactions that meet certain requirements. Generally, these include limits on the amounts raised and the number of buyers who are non-accredited investors, requirements for the information provided to investors, and restrictions on resale of the securities. Two most commonly used exemptions are under rules 506 (b) and 506 (c) of Regulation D. These rules differ in limitations on general solicitation and advertising and the requirements for accredited investors. Rule 506(c) exemption also preempts state securities laws that require registration. The main drawback  is that the securities offered under a Rule 506(c), meaning they cannot be traded freely.
  • Regulation A: Reg A+ exempts public offerings that satisfy certain criteria as to the issuer, type of security, investors, and disclosures. It allows for general solicitation and both accredited and unaccredited investors. In addition, securities offered in Reg A+ are freely tradable. Under Regulation A, offerings of up to $50 million during a 12-month period can be exempted. However, compliance with Tier II of Reg A (up to $50 million) requires significant upfront costs for going through SEC review and ongoing reporting requirements.
  • Regulation S: Reg S exempts offers and sales of securities “that occur outside the United States”. Thus, the Reg S exemption is useful only when all the offers and sales activities are completed entirely outside of the US and made only to non-US Persons. Sometimes, a combination of Reg S and another exemption for US investors is a viable option. The limitation of Reg S is that it is only a federal exemption. A company that relies on Reg S must separately seek a state securities exemption.

Failure to Register When Required Has Severe Consequences

Offering or selling a security without first registering it with the SEC can lead to substantial negative consequences, including:

  • Significant penalties and sanctions imposed by the federal government through criminal, civil and administrative proceedings
  • Civil liability to the buyer for damages or rescission of the sale. If the seller is an entity, then any person with control over it will be jointly and severally liable for such damages

How KStechlaw Helps Clients Comply with SEC Rules

KStechlaw  is a New York City law firm that assists clients who develop and launch virtual tokens in understanding, planning for and complying with federal securities laws.

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