Kodak to Finally Launch Token Sale – But Is It Legal?
Kodak is finally set to launch its initial token offering on May 21st, after a four-month delay caused by concerns over the regulatory environment in the U.S. and the Securities and Exchange Commission’s (SEC’s) dim view of ICOs.
After a Brief Delay, KODAKCoin Is Back on Track
Originally slated for January, Wenn Digital, in which Kodak owns a minority stake, decided to postpone the token offering so that it could vet the over 40 thousand applications it received from potential investors and ensure its token sale was regulation compliant. Cam Chell, KODAKOne’s chairman told Reuters:
“We really took a step back and decided that we would ensure that all Ts were crossed and Is dotted before we embarked on a public sale. We wanted to make sure that we got it right.”
The company has developed a blockchain-based platform designed to protect the copyright of images hosted on it and the revenue of photographers in so doing. The platform is to be called KODAKOne and the tokens KODAKCoin. Kodak licenses the platform from Wenn Digital. The company hopes the combined public and private token offering will raise $50 million USD. It has already gathered roughly $10 million from accredited investors during the pre-sale period.
SAFT Chosen as Token Sale Structure
The token sale will take advantage of an instrument called the Simple Agreement for Future Tokens (SAFT) to be legally compliant with U.S. securities laws. The SAFT structure means that, legally speaking, tokens are sold during a presale rather than during an ICO. Investors do not receive tokens immediately, but the promise of their distribution in the future, and only after there is a working product.
SAFT has been considered a workaround of the SEC’s view that tokens sold during ICO’s are securities (as well as utility tokens). By pre-selling tokens that are not distributed until after the project (i.e. the blockchain platform) has been built, companies do not need to register with the SEC. KODAKCoin tokens will also be sold only to accredited investors in the U.S., (another requirement of the SAFT structure), to help further bulletproof the sale from any potential violation of securities regulations.
Kodak Goes Ahead, SEC Not Convinced
The SAFT structure has been used by both Filecoin and Kik, the instant messaging app. Some analysts argue it remains a risky mechanism to raise funding, as SAFTs are, in fact, securities offered under what the SEC refers to as Regulation D offerings. These allow for the sale of non-registered securities to accredited investors only. The tokens must also be restricted and non-tradable, unless an exemption or registration of the tokens is sought.
ICOs have traditionally been attractive to speculators seeking quick gains from rapid price swings once tokens are listed on exchanges for trade. The SAFT model, in its efforts to avail the company of the freedom to conduct the token sale outside of the purview of the SEC, would appear to be denying investors of the capability to trade the tokens. This somewhat defeats the spirit of a digital token offering.
Nevertheless, Kodak and Wenn Digital have determined SAFT to be the mechanism of choice for their token sale. Whether it is compliant with SEC regulations – as they hope – remains to be seen.
Have your say. Will Kodak achieve success and avoid the attention of the SEC using the SAFT structure?
Images via Pixabay
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