What Are the Top Securities Laws & Regs STO Issuers Need to Know? - Jean P. Charles

Security Token Offering (STOs) issuers are entities or individuals that issue and sell security tokens, a type of digital asset that represents ownership in an underlying asset, such as real estate, equity in a company, or a share in a fund.

STOs are similar to Initial Public Offerings (IPOs) in that they allow investors to purchase ownership in a company or asset. However, unlike IPOs, STOs are conducted using blockchain technology and the security tokens are issued on a blockchain.

STO issuers can be companies, startups, real estate developers, investment funds, or other entities that want to raise capital by issuing security tokens. They are responsible for creating and issuing the tokens, as well as complying with securities laws and regulations.

Securities Act of 1933

The Securities Act of 1933, also known as the "Securities Act" or the "Truth in Securities Act," is a law that regulates the offer and sale of securities in the United States. It was passed as a response to the stock market crash of 1929 and the subsequent failure of many banks and businesses. The law's main goal is to ensure that investors have access to accurate and complete information about securities before they invest. Some of the key provisions of the Securities Act include:

Section 5: Prohibits the offer or sale of securities unless a registration statement is in effect, or an exemption from registration applies. This means that companies must register their securities with the Securities and Exchange Commission (SEC) before offering them to the public, or qualify for an exemption.

Section 11: Imposes liability on the issuer, underwriters, and other persons for material misstatements or omissions in the registration statement.

Section 12(a)(2): Prohibits the sale of securities by means of an untrue statement of material fact or an omission of a material fact.

Section 17: Prohibits fraud and deceit in the sale of securities.

Section 29: Prohibits the manipulation of securities prices.

Regulation A, Regulation D, and Regulation S are the exemptions under the Securities Act, which allow companies to offer and sell securities without registering them with the SEC.

Overall, the Securities Act is intended to protect investors by requiring companies to provide accurate and complete information about securities before they are offered to the public. It also helps to prevent fraud and deceit in the offer and sale of securities.

Securities Exchange Act of 1934 (SEA)

The Securities Exchange Act of 1934 (SEA) is a law that regulates the secondary trading of securities in the United States. It was passed as a response to the stock market crash of 1929 and the subsequent failure of many banks and businesses. The law established the Securities and Exchange Commission (SEC) to oversee the securities markets and to enforce federal securities laws. Some of the key provisions of the SEA include:

Section 3(a)(1): Defines a "security" to include any note, stock, bond, debenture, or other evidence of indebtedness, as well as any investment contract or other type of investment.

Section 3(a)(12): Establishes the national securities exchanges, such as the New York Stock Exchange and NASDAQ, as well as the over-the-counter market.

Section 3(b): Gives the SEC authority to regulate the securities markets, including the power to register and regulate national securities exchanges, broker-dealers, and other securities market participants.

Section 10(b): Prohibits fraud and deceit in connection with the purchase or sale of securities, and allows the SEC to take action against violators.

Section 13(a): Requires companies whose securities are listed on a national securities exchange to file periodic reports with the SEC, including annual and quarterly reports, as well as current reports of material events.

Section 16: Imposes reporting and disclosure requirements on officers, directors, and major shareholders of public companies to prevent insider trading.

Overall, the SEA is intended to protect investors and ensure the integrity of the securities markets. It requires companies whose securities are listed on national securities exchange to disclose financial and other information to the public, so that investors can make informed decisions about buying or selling securities.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 (SOX) is a law that was passed in response to financial scandals such as Enron and WorldCom. It established new or expanded requirements for public companies, including enhanced financial disclosures and internal controls. The law contains 11 titles that address a wide range of financial and corporate governance issues. Some of the key provisions of the SOX include:

Title I: Creates the Public Company Accounting Oversight Board (PCAOB) to oversee the auditing of public companies.

Title II: Requires CEOs and CFOs of public companies to certify the accuracy of their financial statements and to establish internal controls for financial reporting.

Title III: Requires public companies to maintain accurate books and records and to establish internal controls to prevent fraud.

Title IV: Requires public companies to disclose information about their financial condition, including information about off-balance sheet transactions and pro forma financial information.

Title V: Creates new criminal penalties for securities fraud and other financial crimes.

Title VI: Requires public companies to disclose information about their code of ethics and to establish procedures for whistleblowers to report illegal or unethical conduct.

SOX is intended to increase the transparency and accountability of public companies and to prevent financial fraud. However, it also imposed additional compliance costs on public companies, which has been a concern for some.

JOBS Act of 2012:

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JOBS Act of 2012

JOBS Act of 2012: The Jumpstart Our Business Startups (JOBS) Act is a law that was passed in 2012 to help small businesses and startups raise capital. It includes several provisions that impact securities laws and regulations, including:

Title II: Allows companies to use general solicitation and advertising to offer securities, as long as all investors are accredited.

Title III: Establishes a new exemption from registration for certain types of crowdfunding offerings, which is implemented through SEC Regulation CF.

Title IV: Establishes a new exemption from registration for certain types of public offerings, known as Regulation A+, which is implemented through SEC Regulation A.

Title V: Raises the threshold for "emerging growth companies" to be exempt from certain SEC reporting requirements, which allows small companies to raise capital more easily.

Overall, the JOBS Act is intended to make it easier for small businesses and startups to raise capital and to provide more opportunities for investors to participate in private markets.

SEC Regulation D:

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Reg D

SEC Regulation D: Rule 506(c): This rule, also known as Rule 506(c) of Regulation D, provides an exemption for companies to raise an unlimited amount of money from an unlimited number of accredited investors. Under this rule, companies can use general solicitation and advertising to offer securities, as long as they take reasonable steps to verify that all investors are accredited.

SEC Regulation A:

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Reg A

SEC Regulation A: This regulation, also known as Regulation A, provides an exemption from registration for certain types of public offerings, including Regulation A+ offerings. Regulation A+ is a more recent amendment to the regulation, which allows companies to offer and sell securities to the public, including non-accredited investors, with certain limitations. Companies can raise up to $75 million in a 12-month period under Regulation A+ and they are required to provide certain disclosures to investors, including information about their business, the offering, and the securities being offered.

SEC Regulation S

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Reg S

SEC Regulation S: This regulation provides an exemption from registration for certain types of offerings made outside the United States to non-U.S. persons. This regulation allows companies to offer and sell securities to non-U.S. investors without registering the securities with the SEC. However, the securities offered must not be sold in the United States or to U.S. persons during the distribution period (usually 40 days).

SEC Regulation CF:

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Reg CF

SEC Regulation CF: This regulation, also known as Regulation Crowdfunding, provides an exemption from registration for certain types of crowdfunding offerings. Issuers using this exemption are allowed to raise a maximum aggregate amount of $1.07 million through crowdfunding offerings in a 12-month period. Investors are subject to investment limits based on their net worth and income. Issuers are also required to provide certain disclosures to investors, including information about their business, the offering, and the securities being offered.