Legal Steps Required to Launch a Compliant Security Token Offering (Part 1)

BrightCOIN is a SAAS platform for building compliant security token offerings (STO).  You can build both Reg D 506c and Reg S token offerings using BrightCOIN. This article details the steps required for building a security token offering.

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.

1. Hire a experienced SEC attorney

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 subscription and questionnaire. 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.

2. File notice of Form D

Solving the regulatory puzzle

Your attorney will need to file a Notice of Form D for a Regulation D, rule 506 exemption and comply with applicable state fees and notice filing requirements once you receive your first investments (per state). The purpose of these filings is to notify the state securities agencies when a security has been sold to their residents and giving those states information and jurisdiction over the issuer. 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. But, nothing to worry here, a good lawyer can easily guide you. At BrightCOIN we have several recommendations you can choose from.

3. Opinion letter (optional)

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 recap of what you’ll need from your attorney for your Securities Token Offering (STO):

• Complete PPM (Includes Subscription Agreement and Questionnaire)
• Form D / Form S Filings for the states that you get investors from
• Federal Offering Compliance Attorney Opinion Letter

4. Engage a registered escrow service/bank

Once all of the legal work is completed, the next step would be to engage a licensed registered escrow service. At BrightCOIN we highly recommend this. Though it’s an added expense, an escrow service will save you untold misery and expense down the line. Why? Because an escrow service/bank 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/banking 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.

 

 


The content (Blogs, FAQs, News) posted on BrightCOIN may contain incorrect information, always get professional advice. Neither BrightCOIN nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact or opinion in, or lack of care in the preparation of, any of the materials posted on this website. BrightCOIN does not provide legal, accounting or tax advice. Any representation or implication to the contrary is expressly disclaimed.

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