How to Build a Compliant Security Token Offering on BrightCOIN, Part 1

The BrightCOIN platform offers a complete turnkey technology solution for building and launching security token offerings (STO) and ICOs. Depending on if you want to accept US investors, building an ICO is a breeze. So is building an STO that allows an issuer to accept US funds. But prior to building an STO, there are certain steps that are needed to be completed in order to comply with securities and banking regulations.

First, hire an experienced attorney. We suggest that you hire someone who has extensive experience in securities law and specifically STOs. You will need your attorney to guide you through the process of completing a private placement memorandum, or PPM, that will include a subscriber subscription. These documents perform a similar purpose as a prospectus and explain the details of your offering, any and all disclosures, and the terms the investors must agree to prior to investing in your tokens.

Solving the regulatory puzzle

You will then need to file for a Regulation D, rule 506 exemption and comply with applicable state fees and notice filing requirements, or Blue Sky filings. The purpose of the Blue Sky filing is to notify the state securities agencies when a security has been sold to one or more or their residents and giving those states information and jurisdiction over the issuer (i.e., the right to serve the out-of-state issuer with a lawsuit) in case a securities violation is found to have occurred. Failure to comply with federal and state securities laws may result in civil or criminal penalties including contract rescission, enforcement actions, or anti-fraud prosecution.

It’s always a good idea to get an “opinion letter” from your attorney. An opinion letter is a formal expression of a judgment or advice based on an expert’s special knowledge. The term is commonly used to refer to a document containing a lawyer’s understanding of the law that applies to a particular case.

So here’s a list of what you’ll need from your attorney:

• Complete PPM (Includes Subscription Agreement and Investor Verification Letter)
• Preparation of State Notice (Blue Sky) Filings for All US States
• Preparation and Filing of Federal Form D and Form S
• Federal Offering Compliance Attorney Opinion Letter

Once all of the legal work is completed, the next step would be to engage a licensed registered escrow service. Though it’s an added expense, an escrow service will save you untold misery and expense down the line. Why? Because an escrow service provides you with full compliance with the Bank Secrecy Act and a number of other compliance requirements that you would have to adhere to otherwise. Compliance with the BSA and Money Service Business requirements fall squarely on the shoulders of the issuer and can be extremely cumbersome and costly, especially for a blockchain startup. There are many excellent escrow services available and feel free to contact BrightCOIN if you’d like some referrals.

To complete your compliance documentation for BrightCOIN, a copy of your articles of incorporation or company formation, the company EIN number, a copy of your Privacy Policy and a copy of your General Terms will be required. These documents will all be uploaded into the BrightCOIN system and available for viewing by investors.

Now you’re ready to start building your STO on BrightCOIN’s platform.

In Part 2 of this article, we’ll go through the steps to build your STO on the BrightCOIN platform.

NOTE: This article is provided for informational purposes only and should not be construed as legal or tax advice.

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