The First SEC-Approved Token Offering under Regulation A+; The Dam Breaks?

July 12, 2019

On July 10, 2019, the SEC granted qualification to Blockstack’s sale of $28 million worth of digital tokens to the public under the SEC’s Regulation A registration exemption. This marks the first ever SEC compliant public sale of securities tokens in the United States.

Regulation A under the Securities Act of 1933, as amended (the “Securities Act”) was amended as part of the Jumpstart Our Business Startups Act of 2012 and is now referred to by many as “Regulation A+”. Regulation A allows companies to raise up to $50 million in a twelve-month period without the burden of the full range of disclosure obligations that come with a traditional IPO.

Until now, companies wishing to sell tokens that are securities have not been able to do so except in private sales under Regulation D under the Securities Act or pursuant to a different exemption from the registration requirement of the Securities Act. While this approach permits token sellers to raise funds, many token platforms are designed with “tokenomics” that require freely tradeable tokens, and tokens sold pursuant to Regulation D are not freely tradeable for the first year. By offering and selling tokens under Regulation A+, Blockstack will be able to sell freely tradeable tokens to the public.

Is this a sign that the dam is breaking? The day after Blockstack’s Regulation A offer was qualified, the SEC qualified another Regulation A offering, YouNow, Inc.’s offering of up to 178,000,000 Props Tokens that will be used to reward users for in-app activities, to reward administration and development of its blockchain and subsequent potential sale to the public. But it is important to note that Regulation A offerings are limited to no more than $50 million annually (so-called “Tier 2” offerings); any registrant wishing to register a larger amount of securities for sale must do so through a full-blown registration process, and no token offering has yet been successfully registered under that process.