The National Basketball Association (NBA) is considering a proposal to its owners that (i) seeks to provide additional liquidity to minority owners and (ii) enables a broader range of investors to secure an ownership interest in a team. This proposal presents a timely and unique opportunity to design and implement a model for tokenizing professional team ownership and democratizing access to the economic interests and related value that are currently locked up in major league professional sports franchises.
Creating digital assets and validating their authenticity, rights and utility, value, custody and transfer via blockchain technology are key elements in the emerging global financial architecture of designing and democratizing access to new asset classes.
Discussed are (1) the SEC’s changing views on token issuance's over the past 12 months; and (2) discuss the conflicting standards presented by established case law and new “official” statements set forth by the SEC as to if and when the issuance of tokens constitutes the issuance of a security as defined in the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”).
What is the legal test for determining if a token is or is not a security? The cooperative business model is discussed and explored as an alternative to traditional centralized, proprietary business structures.
Howey is the basis for security offerings in the United States. But what happens when blockchain technology is applied to the citrus grove? In a decentralized environment, token purchasers/participants become members of the citrus grove cooperative upon purchase of the token, create and realize value in the cooperative, and acquire the benefits and responsibilities of the token issuer. Thus token purchasers enter a synergistic relationship with the token issuer when new projects use a decentralized, cooperative business model.
Initial coin offerings, or crypto-equity financings, are being effected in a manner and timeframe where the novelty and rapidity of the cryptocurrency markets are outpacing the establishment of comprehensive, clear, and relevant guideposts under U.S. securities laws. As a result, every crypto-equity financing must be evaluated independently to ensure compliance with securities laws.