(For German version click here)
Over the last years, so-called token sales have emerged as a new method of financing for businesses. By such, companies that seek funding offer interested investors their self-created blockchain tokens for purchase. These tokens allow their bearers the assertion of certain connected rights vis-à-vis the issuer. The rights that can be associated with the tokens may be of very versatile nature, depending on the legal design of the tokens. Tokens may allow their bearers access to certain services of the respective issuer or they may grant discounts for services that are offered by the issuer within the specific business model. Alternatively or additionally, tokens can also be connected to return or repayment claims or to voting rights. According to the administrative practice of BaFin and depending on the specific nature of the connected rights, they may be qualified as digital vouchers or access permissions (so-called utility tokens), as alternative means of payment (so-called currency tokens), or as regulated investment products (so-called security or investment tokens). For the last category, the issuer is regularly confronted with the question, if the token sale can solely be conducted on the basis of a prospectus to be approved by BaFin and other, potentially required documentation.
Public Offering of Security Tokens and Investment Tokens Generally Require Prospectus
In case that the offered tokens, respectively the connected rights represent transferable securities, shares in an investment fund or other asset investments for the token bearers according to the applicable regulations, a comprehensive sales prospectus and possibly further distribution documentation must be drawn up, approved by BaFin and be published by the issuer and every further offeror. Even though the applicable regulation regimes of the EU Prospectus Regulation, the Capital Investment Code (KAGB) as well as the Asset Investment Act (VermAnlG) intend for certain exemptions, these exemptions are all only applicable to offers that either target professional investors or that only have a small volume. Anyhow, all three regulatory regimes require a public offering of the tokens for being applicable. Should this essential requirement not be met by a token sale, the project would not be subject to prospectus or transparency obligations under the named regulatory regimes.
At What Point is a Token Sale a Public Offering?
The EU Prospectus Regulation defines the public offering as a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the products to be offered, so as to enable an investor to decide to purchase or subscribe for those products. According to its scope, the EU Prospectus Regulation only relates to securities. However, the definition can also be used for the interpretation of the term “public offering” in the context of asset investments and shares in investment funds, because neither the KAGB nor the VermAnlG contain a definition of their own. The offering of tokens is therefore public, if it is targeted at investors that are unknown to the issuer, respectively the offeror and if those unknown investors are informed about the essential parameters such as e.g. the purchase price. Usually the term “public offering” is interpreted in a rather broad way, so that it is not sufficient to withhold essential investment information from the potential investor to qualify the offering as not public. Should the offer only be targeted at investors that are known to the issuer, with which a private or business relation had been established prior to the offer, the offer may not be qualified as public. These private placements can be conducted without the prior creation of a prospectus other documentation.
Attorney Lutz Auffenberg, LL.M. (London)
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