By Josiah Wilmoth
In an apparent industry first, a token generation event (TGE) operator has registered its token sale as a securities offering with the US Securities and Exchange Commission (SEC).
TGE Registers as Securities Offering in Apparent Industry First
Praetorian Group, a blockchain startup seeking to raise $75 million to establish a cryptocurrency real estate investment vehicle (CREIV), has submitted an S-1 filing informing the SEC that it intends to conduct a TGE that may be considered a securities offering.
Praetorian said that while some people might consider its TGE a utility token sale, the company felt it was “prudent” to register as a security given the uncertainty surrounding the SEC’s application of securities laws to the nascent TGE marketplace.
From the filing:
“In particular, the Company is mindful of the uncertainties associated with the Securities and Exchange Commission’s (‘SEC’) view as to whether or not an Initial Coin Offering (‘ICO’) would constitute a ‘security’ under applicable federal securities laws, We, therefore, believe it is more prudent to register the offering with the SEC to avoid any unanticipated regulatory issues with the SEC and/or other regulatory agencies such as FINRA.”
The company said that its token, PAX, will entitle holders to a share of the company’s net profits — though not equity in the firm — which will be derived from investments in real estate holdings. Each token will cost $5 during the TGE, meaning that — if the sale hits its hard cap — PAX will have an implied market cap of $1 billion.
SEC Cracks Down on Security Tokens
Praetorian claims to be the first company to register with the SEC as a securities offering, a move that comes in the wake of an explosive report which claimed that the agency has issued subpoenas to “dozens” of TGE operators that it believes may have violated securities regulations by offering unregistered security tokens.
Previously, TGE operators claimed exemptions under SEC regulations, with most stating that their tokens were “utility tokens” and thus not securities under US law. However, the SEC has signaled that its interpretation of what constitutes a utility token is more narrow than the standard by which many in the industry had been operating, which will perhaps lead more TGE operators to register as securities moving forward.
As a registered security, Praetorian’s filing includes a prospectus that is more detailed than the whitepapers published by most TGEs. However, as Renaissance Capital noted in its brief on the TGE, Praetorian’s S-1 filing “is not structured like a typical IPO document and does not offer the same level of disclosure.”
Strategic Coin is a leading research and advisory firm for companies planning to integrate blockchain capabilities into their business model via utility token launches. Our customer research reports provide qualitative and quantitative analysis of token use cases and platform value. With the Strategic Coin Advantage network of partners, we offer customized services for the pre-launch, full-launch, and post-launch phases of Token Generation Events (TGEs).
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