– is an investment of money
– the investment is in a joint venture
– there is an expectation of profit from the work of the promoters or third parties.
Security tokens bring numerous improvements to traditional financial products by removing the middleman from investment transactions, which results in lower fees, faster execution of deals, free market exposure, a larger base of potential investors, functions of automated service and lack of manipulation of financial institutions.
In 1946, the US Supreme Court handled the SEC vs Howey lawsuit that would lay the groundwork for the now well-known Howey Test.
The lawsuit involved determining a test for whether or not a given deal involves an investment contract. According to the SEC, the defendants had violated the law by not filing a securities registration statement and to avoid future misunderstandings of the law developed a test that is used to understand whether or not a given transaction is an investment contract. In this case, it will be subject to the obligation to register the securities.
According to Anthony Pompliano, founder and partner of Morgan Creek Capital, a hedge fund specializing in Blockchain technology and digital assets, because security tokens are subject to federal security regulations, they are compliant from day one.
They must follow the following regulations in the United States:
• Regulation D: will allow a particular offering to avoid being registered by the SEC, provided that "Form D" has been completed by the creators after the sale of the securities. The person offering this security may request offers from investors in accordance with Rule 506C, which requires verification that investors are actually accredited and that the information provided is free from false or misleading statements
• Regulation A+: will allow the creator to offer a SEC-approved security token to non-accredited investors for investments up to $50 million. Since it has to be registered, this step could take much longer and be the most expensive
• Regulation S: this is the case when a security offering is performed in a country other than the United States and is therefore not subject to the registration obligation under section 5 of the 1933 Act. Creators are still required to follow the rules of the Country where everything should be performed.
In the European Union, the company issuing the tokens must register a prospectus compliant with the EU Prospectus Directive, a framework directive developed as part of the action plan for financial services.
It provides for a single EU-wide regime governing the requirements for a prospectus and its content, format, approval and publication. The EU prospectus regime harmonises the requirements when securities are offered to the public or admitted to trading on a regulated market in an EU Member State. The ICOs relating to security tokens take the name of STO (Security Token Offering). One of the most important applications is in the real estate sector, with considerable savings in time and money for the registration of deeds of sale in the case of the sale of a real estate property, such as this one.
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