Presentation - Securities Regulation 101, Washington State Department of Financial Institutions

Summary

A presentation titled Securities Regulation 101 from the Washington State Department of Financial Institutions. It states that it is unlawful to offer or sell a security unless the security is registered or exempt, the persons selling it are licensed or exempt, and there is full disclosure of all material facts to all offerees and purchasers. It lists the Howey test for an investment contract and describes Initial Coin Offerings (ICOs), in which tokens or coins are sold to develop networks on which digital assets will operate. Its regulatory guidance includes a speech by William Hinman, SEC Director of Corporation Finance, dated June 14, 2018, and a framework from SEC Staff dated April 3, 2019.

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Full text

   Securities Regulation 101

It is unlawful to offer or sell a security unless:
• The security is registered or exempt;
• The persons selling the security are
    licensed or exempt; and
• There is full disclosure of all material facts
    to all offerees and purchasers.



Washington State Department of Financial Institutions
        “Leading the way in consumer protection and financial services regulation .”
          What is a “security”?

•     Stocks
•     Bonds
•     Notes
•     Mutual Funds
•     Investment Contract




    Washington State Department of Financial Institutions
           “Leading the way in consumer protection and financial services regulation .”
      Investment Contract

Howey test:
• Investment of money,
• In a common enterprise,
• With a reasonable expectation of profits to
  be derived from the efforts of others.

  SEC v. W.J. Howey Co.,328 U.S. 293 (1946)


Washington State Department of Financial Institutions
       “Leading the way in consumer protection and financial services regulation .”
          Howey continued

• Substance over form. Applies to any
  contract, transaction or scheme even if not
  a typical security.
• Focus not only the instrument itself, but
  also on the manner in which it is offered
  and sold.




Washington State Department of Financial Institutions
       “Leading the way in consumer protection and financial services regulation .”
 Initial Coin Offerings (ICOs)

• Tokens or coins are sold to develop
  networks on which digital assets will
  operate.
• Purchasers are told that once the network
  is built, the enterprise will be more
  valuable and they can sell their coins or
  tokens at a profit.



Washington State Department of Financial Institutions
       “Leading the way in consumer protection and financial services regulation .”
      Regulatory Guidance

• The DAO Report, SEC Release No. 34-
  81207, July 25, 2017
• Digital Asset Transactions: When Howey
  Met Gary (Plastic). Speech by William
  Hinman, SEC Director of Corporation
  Finance, June 14, 2018
• Framework for “investment Contract”
  Analysis of Digital Assets, SEC Staff, April
  3, 2019
Washington State Department of Financial Institutions
       “Leading the way in consumer protection and financial services regulation .”


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