Security Token Offering (STO) Legal Support
At AURUM, we know the value of quality legal service. Security Token Offering (STO) generally involves numerous jurisdictions and cross-border transactions, and we bring together advisors with deep international experience to address the most complex but essential issues arising with respect to an STO as an international event in the first place.
Being an international event, the security token offering must be structured to be 100% compliant in every jurisdiction where the tokens are being offered or sold. This results in the absolute need for the involvement of numerous counsels and financial intermediaries in target jurisdictions, as well as directing and overseeing their work.
A Brand New Approach to STO Legal Support
Given the above specificities, we have developed an approach that offers a cost-effective and efficient legal workflow. Since we have brought together attorneys that are highly familiar with the requirements applicable to STOs in all key jurisdictions, including the U.S., European Union and major Asian markets, AURUM can act as the legal manager for the project and handle most of the legal work.
This approach allows for a significant reduction of legal expenses: rather than hiring a law firm in every target jurisdiction, the project hires AURUM, which conducts the bulk of the legal work and involves local councils only where necessary or required by the law. Furthermore, we act as a single point of contact for the client with respect to all legal matters, which significantly facilitates the legal workflow and allows the team of the project to efficiently resolve any legal issues with minimal time and effort.
Stages of STO Legal Structuring
Legal work on the security token offering can be roughly divided into three consistent stages, described in more detail below.
Stage 1. Preparation of the Security Token Offering (STO)
During this stage, we get familiar with the project and conduct an initial legal analysis of the structure, proposed token model and underlying assets to be tokenised.
Our attorneys work with securities legislation, determine target markets for the token offering, identify securities laws frameworks under which the offering can be held in each of these jurisdictions and develop the corporate structure for the project.
While assessing requirements of applicable security legislation in target jurisdictions, we analyse, inter alia:
- security offering rules and frameworks available for public offerings and exempt offerings. For example, for a public offering, as a rule, requires registration of securities in target jurisdiction, e.g., under Prospectus Directive and Prospectus Regulation in EU, Reg A+ in the U.S.; an exempt offering does not require registration, however, certain restrictions and limitations may be imposed by law, e.g., Prospectus Regulation in EU, Regulation D and S in the U.S. and so on;
- legal requirements as to the format and the content of the offering documentation;
- transparency rules on the disclosure of accurate, comprehensive and timely information about the issuer and the business, if applicable;
- rules on the safekeeping and record-keeping of securities ownership and rights attached thereto;
- collective investment schemes framework, if applicable;
- alternative investment fund framework, if applicable;
- risk assessment and disclosure requirements;
- distributed ledger-technology framework, including the possibility for keeping the records “on chain”.
Upon the completion of the first stage, AURUM issues the legal opinion outlining proposed legal structure of the STO and underlying asset, requirements and terms of the token offering and sale, securities law frameworks in target jurisdictions under which the token sale may be held, as well as exemptions and restrictions applicable thereto.
Stage 2. Implementation
This stage implies the implementation of the legal plan developed during the first stage, as well as legal support for the organisation and issuance of the security token offering.
During the second stage, AURUM conducts general legal project management, as well as reviews and analyses the whitepaper and related project materials with a view to securities legislation, applicable disclosure, and fair competition rules. Our attorneys work closely with the project team to properly design the ‘permitted token’ and structure the underlying asset.
We assist with drafting information memorandum for exempt offerings and prospectus for public offerings, which combines some of the provisions common for ICO whitepapers and terms of token sale. These documents are tailored to the target jurisdictions’ security law requirements as to the format, disclosure of information, risk assessment, etc.
AURUM supports the establishment of the tokeniser vehicle (SPV) and helps the project to sign with the technical solution provider and financial intermediaries (e.g. broker-dealers, investment advisors) in target jurisdictions, where necessary.
We further provide recommendations on the safekeeping and recordkeeping of the token and rights attached thereto, as well as the STO marketing campaign and restrictions applicable thereto. Our lawyers also provide ongoing legal advice and support to the project team.
During this stage, AURUM drafts all necessary legal documentation for the security token offering. After all the required documentation is drafted, AURUM engages legal advisors in target jurisdictions to validate the accuracy and completeness of the work done, to apply for exemptions with local authorities, and to carry out other activities required by the law.
Stage 3. Post-STO Legal Support
On this stage, we provide legal support to the project on the post-STO stage, assists with the establishment of procedures necessary for the tokenised securities life-cycle management, manage investor relations, prepare recommendations on the validation of transactions with tokenised securities and documents required for the transfer of tokenised securities.