Private-Jet Cryptocurrency Gets Pass From SEC (#GotBitcoin?)
A private-jet company won the ability to sell a digital token that doesn’t require oversight by financial regulators. The hitch: The token won’t operate like others, diminishing its allure to fans of cryptocurrencies. Private-Jet Cryptocurrency Gets Pass From SEC (#GotBitcoin?)
Restrictions on use of TurnKey Jet’s ‘digital tokens’ limit their appeal for investors broadly.
The Securities and Exchange Commission on Wednesday told TurnKey Jet Inc. that the company can issue “digital tokens” to people who sign up for its membership program. Members can then, in turn, use the tokens to charter a private jet.
TurnKey agreed that its tokens would only trade between members of the program and that it wouldn’t be able to buy them back at a premium. The ability to speculate in digital coins by trading on global exchanges has made cryptocurrencies appealing to investors.
TurnKey Jet, which began flying in 2012, offers short-term leases, maintenance and insurance on private jets. The West Palm Beach, Fla., company didn’t respond to requests for comment.
The SEC spooked the burgeoning cryptocurrency marketplace in mid-2017 when it warned that many tokens were illegally sold securities. It later brought a series of enforcement actions against initial coin offerings to show it was serious about bringing the market under federal securities laws.
The SEC’s actions have prompted many companies to be cautious when planning to sell anything that could be construed as a digital currency.
The relief from federal oversight covers just one firm. It shows companies can, in fact, get the SEC’s blessing to sell a token that has a consumer use. That offers some regulatory certainty to an industry that could make certain transactions and services more efficient, but also is becoming a breeding ground for fraud.
Only a year ago, hundreds of startups issued tokens in exchange for bitcoin or other well-known cryptocurrencies, creating thousands of new assets that traded on exchanges.
Initial coin offerings brought in $118 million in the first quarter, according to data from research site TokenData, compared with $6.9 billion in the same period in 2018.
The SEC uses a 73-year-old legal test to define which assets are securities subject to regulation. The test turns on whether the investment’s future anticipated value mostly derives from the work of the business that issued it.
Tokens that qualify as securities can’t be sold to the general public without providing investors and regulators with disclosures that reveal the issuer’s finances and business plans.
One startup, CarrierEQ Inc., filed such disclosures last month after the SEC insisted that its token holders receive them. The step was required under an enforcement settlement that CarrierEQ Inc. and another firm, Paragon Coin, reached with the SEC in November over the firms’ earlier, unregulated token sales. CarrierEQ offers mobile access to banking services to consumers in emerging markets.
TurnKey Jet has promised the SEC that it won’t use funds from any token sale to develop its network and would restrict sales to digital wallets on its platform. That means the tokens won’t trade on an exchange, limiting their speculative value.
The company told the SEC that digital tokens would reduce its transaction costs and make it easier for customers to quickly purchase air travel.
The SEC agreed to TurnKey’s proposal through a letter made public Wednesday.
In a different document posted to its website that also tries to clarify how the law applies to digital tokens, the SEC described how an asset previously sold as a security could morph into a consumer product. Some crypto founders have asked the SEC to provide clarity on how that could happen.
The move shows the SEC would judge each project on its own merits, said Sara Hanks, a lawyer who leads CrowdCheck, a firm that advises crypto startups on compliance. Yet some firms may treat the letter as an invitation to launch projects they think comply with its limitations, she said.
“You can be sure that there will be some joker who will extract bits of this guidance, stick it on their website and say, ‘See, the SEC says this is not a security!’” she said.
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