Lewis Cohen Profile picture
Aug 20, 2019 10 tweets 4 min read Read on X
1/ Having so much fun with this thread - let’s add a hypothetical. Inspiration from our friends @coincenter. A developer team raises money by pre-selling a token that does not yet exist. H/t @jasonsomensatto @lex_node @propelforward @AndoniOlta @jchervinsky @LawxTechxArt
2/ During the pre-sale (which is open to the general public and not otherwise registered with the SEC), the developer team affirmatively reference the anticipated success of the platform they are building and the attendant economic benefits of owning the yet-to-be-developed token
3/ Purchasers send crypto to the developer team and, in exchange, designate a wallet address to which the tokens, once created, will be sent.
4/ At this point, is there anyone who doubts that, in the United States at least, this *arrangement* would be considered and “investment contract” and, since the offers and sales were made to the public and not registered, would violate Section 5 of the ‘33 Act?
5/ But ... there is no token yet. There may never be a token. So what exactly is the “security”? 🤔
6/ The “security” is the arrangement or “scheme” (or even “device”!) in which the developers raise money in a common enterprise with the funders who have a reasonable expectation of profit (through later disposition of the tokens, when created) from the efforts of the developers.
The absence of a token of course does not eliminate the securities sale. Note that the token is not needed for a transfer by an “initial purchaser” to occur. The initial purchaser can instead transfer control of the wallet address maintained on the ledger of the developers.
8/ So what happens if/when a token is created? Does the “security“ that already exists (see above) transmogrify into the token? How does that happen, exactly? By “operation of law”? And for what consideration?
9/ So what’s the point? US law is meant to protect those who transfer value to promoters selling often unrealistic get-rich-quick schemes by offering something supposedly of value with little or no clear disclosure of the risks of what is being sold. If you do this, watch out!
10/ However, extending this very important protection by imputing “securityness” on assets that, by their terms, are not “securities” is a whole ‘nother thing. Something that perhaps can be done, but (I would argue) is not the best way to soundly move this space forward. [end]

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More from @NYcryptolawyer

Jun 29
1/ Can I just say, “Wow!” … ?

Last night, US District Judge Amy Berman Jackson issued the first definitive opinion speaking to secondary sales of crypto assets.

storage.courtlistener.com/recap/gov.usco…
2/ What did she have to say? A lot! But on the subject of secondary sales of tokens and the embodiment theory, her voice was clear: Image
3/ Judge Berman followed this with: Image
Read 6 tweets
Jul 12, 2023
1/ So excited!!  Sen. Cynthia Lummis just announced on Squawkbox that a revised version of the Lummis-Gillibrand Responsible Financial Innovation Act is being introduced in the Senate today.  This is BIG NEWS.
2/ Many of us were already encouraged by the House Digital Market Structure Proposal announced by Reps McHenry and Thompson last month. Now, with a major proposal in the Senate as well, we are finally seeing real movement on the U.S. legislative front.
3/ Sure, Europe has MiCA, but there is plenty of time left for U.S. set the standard for a thoughtful and responsible innovation framework.
Read 42 tweets
Nov 10, 2022
0/ Image
1/ For almost three years, the @DLxLawLLP team has pondered the most consequential of question in all of crypto law:  When and how do the US federal securities laws apply to crypto assets?
2/ As lawyers out there will know, the answer to this question turns on a rule set out in a 1946 Supreme Court case, SEC v. W.J. Howey Co. — what has become known as the “Howey test”.
Read 23 tweets
Jul 1, 2022
1/ A US take on this very informative thread from @paddi_hansen.

#MiCA unquestionably is the most important and comprehensive regulatory effort to date on #crypto and digital assets. However, this may not be a case of giving Europe a “first mover advantage”.
2/ You will likely see concerns raised about what MiCA does to Europe’s “competitiveness” in the emerging web3 space (whatever you think that term means).

Any time new regulations are put in place, the push-poll cries of market participants and regulators begin …
3/ Regulators:
Read 18 tweets
Jan 27, 2022
1/ For those who have been following my legal scholarship on #securities and #tokens e.g., papers.ssrn.com/sol3/papers.cf…), it is for exactly this moment that we have been doing this work.

The proposed rule amendments focus on “Communication Protocol Systems”.
2/ These are defined as “a system that offers protocols and the use of non-firm trading interest to bring together buyers and sellers of *securities*”. (My emphasis.)
3/ If most tokens themselves were to be considered “securities”, this would be exceedingly problematic, as @lex_node points out in his excellent piece here:

lexnode.substack.com/p/urgent-consi….
Read 7 tweets
Dec 29, 2021
1/ This thread (and the various comments/responses within) deserves more attention. There is both incredible promise and incredible risk in including “real world assets” (#RWA) in #DeFi. As usual, @lex_node is asking very relevant questions.
2/ As a long-time RWA securitization lawyer who lived through 2008-9, I speak from direct experience here. The Financial Crisis arose from a paroxysm of yield-chasing leverage financing purportedly “safe” and “high quality” financial assets.

How about let’s not do that again?
3/ @lex_node correctly points out below that, wrt RWA, “transparency“ is not just about which assets exist (which you can determine with tools like Etherscan). It is also about the character and collectibility of the underlying RWA themselves in “meat space”.
Read 9 tweets

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