Security Token news for Week Ending Friday 27 March 2020

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Here is our pick of the 3 most important Security Tokens news stories during the week:

Federal court judge grants temporary injunction against Telegram
A federal court judge Tuesday sided with the SEC against Telegram and granted a preliminary injunction in Telegram’s $1.7 billion initial coin offering. 

Why it matters: All eyes have been on messenging platform Telegram’s plans to distribute its digital tokens, Grams, via its soon to be launched Telegram Open Network secondary public market.  In 2018 Telegram sold 1.9 billion Grams to 175 global purchasers in exchange for $1.7 billion pursuant to a SAFT (Simple Agreement for Future Tokens), an investment contract designed to provide a compliant alternative to an ICO.  The SEC has opposed the distribution on the Telegram Open Network, asserting Grams are unregistered securities. 

Telegram claims the original ICO was a compliant exempt sale of securities, and the Grams then and now and in future are not a security, but a currency/commodity.  The case is pivotal as many token players have already issued tokens through SAFTs; the industry is gauging behavior related to this outcome.  This court ruling against Telegram makes it easier for the SEC to impose penalties on such companies, force repayment of money back to investors and enjoin new issuances and trades.

  A token deemed a security under US law (as distinct from a currency, commodity or something else) is subject to registration requirements. Financial services companies assisting in the buying, selling, structuring or trading are subject to registration and licensing.  The SEC has not issued clear guidelines defining security tokens.  The SEC determined Grams are a security applying a legal test that Grams involve an investment of money that comes with an expectation of a profit derived from the efforts of others. The present case was for the court to rule on a preliminary injunction blocking Telegram from proceeding with the issuance and secondary market distribution of Grams, pending a court determination on the merits. The court, agreeing SEC has a substantial likelihood of success alleging Grams are securities, granted the preliminary injunction.  It remains to be seen if Telegram will take the case to Court of Appeals, return proceeds to it 175 purchasers, or something else.  Telegram certainly possesses sufficient funds to pursue the course it chooses.

TokenSoft Partners with Ex-Military Cyber Firm Hub Security

TokenSoft, a platform for issuing digital securities using blockchain technology, is tapping into Israel’s experience in cyber security, having signed a new partnership with ex-military Cyber firm Hub Security.

Effective immediately, clients of TokenSoft’s transfer agent, DTAC, will leverage Hub Security’s miniHSM solution, which provides token issuers with a cryptographic environment for the whole lifecycle of digital assets. Among other things, miniHSM helps companies grappling with the threat from organised crime and hackers through enforcing end-to-end encrypted USB and wireless Bluetooth connectivity, making its endpoint usage accessible.

Why it matters: Attacks, including breaches at top crypto exchanges such as Binance, have made improved cybersecurity a high priority, and TokenSoft needed to up its game. HUB security offers military-grade cybersecurity tactics including FIPS140-2 Level 4 protection. Built for the use of blockchain-based products, the product offers a combination of hardware and software solutions including a multi-signature vault, hardware firewall, access control, and a neural network learning system designed to anticipate cyberattacks.

France: Blockpulse Pursues First Security Token Offering in Partnership with Lemonway, Plans Stock Exchange for Startups

Blockpulse is the first company in France to pursue a security token offering (STO). Blockpulse is a blockchain-based shareholding management solution. The company launched its service last week in partnership with Lemonway, a Fintech providing payment services. Blockpulse offers a blockchain-based software solution for digitizing securities issuance and management operations for unlisted joint-stock companies

Why it matters: Blockpulse aims to become a “Stock Exchange for startups” within the next 18 months.

We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

For context on Security Tokens please read the chapter on Security Tokens in our Blockchain Economy book and read articles tagged Security Tokens in our archives.

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