Legal support for Initial Coin Offering (ICO) procedure
Attorneys at AURUM Law Firm provide a full range of services related to the legal support of the Initial Coin Offering (ICO) procedure.
All the way through the initial token offering procedure we work closely with the team of the project, our lawyers help correctly structure the token, develop the corporate structure, establish necessary companies and draw up the token sale documentation.
Choice of Jurisdictions for the ICO, Incorporation
- We help select the jurisdiction for incorporation of the “tokenizer” company, that will carry out the ICO, and for the «operating» company, that will own the rights to the project and run the business.
- Incorporation of the abovementioned entities.
- Incorporation of the escrow agent (if necessary).
- Preparation of shareholders agreement between the beneficial owners.
- Bank account opening.
Drawing Up ICO Documentation
- Drafting the agreements between the operating company and the tokenizer.
- Drawing up Pre-ICO agreements and related documentation (if necessary).
- Drawing up Terms of the Token Sale and private token purchase agreements.
- Preparation of the escrow documentation (if necessary).
- Drafting agreements with the team and advisors of the project.
- Development of Terms of the bounty campaign.
Legal Opinion on the Project and Legal Status of the Token
AURUM Law Firm draws up a detailed legal opinion analyzing the project, token sale, structure, and features of the token. The legal opinion answers the following questions:
- Will the token be deemed to meet the definition of security under the U.S. legislation, Howey Test, Family Resemblance Test, Risk Capital Test criteria?
- Will the token be deemed to meet the definition of security under the laws of the jurisdiction where the ICO is being structured?
- Will the token sale fall under the framework of collective investment schemes, AIFs and transferable securities under the applicable legislation?
- Will the token sale fall under the special distributed ledger technology regulatory framework, if any?
Restrictions for Residents of Certain Jurisdictions
The team of the project should approach the distribution of tokens in different jurisdictions with the utmost caution, given the everyday changes in the cryptocurrency regulation, tightening of the supervision over the ICOs in different jurisdictions and national supervisory authorities’ varying approaches to the question of the ICO.
AURUM performs a detailed analysis of the project, examines the token and legislation of key jurisdictions, as well as positions of their regulatory authorities. Based on the results of such analysis we determine jurisdictions where the token sale may be considered to be violating the laws, and further provide the client with detailed recommendations on the blocking regimes, e.g. blocking of IP addresses, displaying of warnings, disclaimers etc.
The client also receives recommendations concerning compliance with the applicable sanctions in the course of the token sale, including the lists of OFAC and EU.
A thorough approach to the abovementioned issues allows the project to avoid further problems with regulatory authorities and with the listing of tokens on known exchanges, which otherwise could have arisen.
Legal Analysis of the Whitepaper and Marketing Materials
We review the Whitepaper and main marketing materials for violation of third-parties’ intellectual property rights, applicable legislation, unfair competition regulations etc.
AURUM elaborates a separate section “Legal Status of the Token” for the Whitepaper, draws up the list of risks related to the participation in the ICO and necessary disclaimers regarding forward-looking statements, assumptions, regulatory uncertainty etc.
As the practice shows, utility tokens are frequently positioned as securities (investment and speculative tool). Poor positioning of the token and even certain public statements made by the team may result in claims of supervisory authorities, particularly, the SEC (US), which will consider the token to be a security (see “Munchee case”).
To prevent situations alike, AURUM provides recommendations and a set of rules which must be followed by the team of the project during the marketing campaign and in the course of preparation of related materials.
Development of AML/CTF Policy and KYC Procedures
Irrespective of the country where the token sale is structured, the project must implement the requirements set forth by the Anti-money laundering (AML) and Combating terrorist financing (CTF) laws. Under the AML/CTF laws, the token issuer is required to carry out the customer due diligence procedures, where applicable, including identification of the token purchasers.
Violation of AML and CTF requirements as a matter-of-course will result in problems with the banks (e.g. when exchanging to fiat currencies) and with the listing of the token on known exchanges. AURUM provides each client with individual instructions concerning the KYC procedures and develops necessary internal AML and CFT policies for the company.
Private Token Placement in the USA
In case our attorneys conclude that there is a high risk for the token to be considered a security in the US, another option would be conduction of a private token offering under one of the exemptions provided by the securities exchange laws, particularly, under the rule 506(c), Regulation D, which allows selling tokens to accredited investors in the US without the tokens being registered with the US Securities and Exchange Commission.
AURUM helps correctly structure private token offerings in the US, e.g. through the simple agreement for future tokens (SAFT framework). For these purposes, we engage our legal partners from Silicon Valley, where necessary.