SEC’s First Crypto ‘No-Action’ Letter Took 11 Months to Secure

Brady Dale
Apr 3, 2019 at 20:00 UTC
news

The U.S. Securities and Exchange Commission (SEC) cleared TurnKey Jet, Inc to raise money via the sale of a custom cryptocurrency on Wednesday in the form of a “no-action” letter, it’s first to address blockchain-based fundraising.

The letter means the Florida-based startup can sell TKJ tokens to customers with the sole purpose of helping them book travel on private jets. James Prescott Curry is the lawyer who worked with TurnKey Jet to get the SEC’s assurance that it won’t take regulatory action against the startup.

In announcing its decision April 3, the SEC references a letter from Curry dated April 2. However, as Curry explained to CoinDesk today, yesterday’s letter was probably the 10th version he’d written.

He told CoinDesk:

“I submitted the first draft of the letter on May 23, 2018, so it was a long, but rewarding, process.”

In addition to multiple versions of the letter, Curry estimated he probably took as many as 50 phone calls with SEC agency staff, largely beginning in the fall of last year. Four or five of those calls lasted from an hour to 90 minutes, Curry said, as SEC staff offered detailed questions regarding TurnKey’s proposal.

The longer calls are referred to by staff as “comment calls.” The first one began the iterative process between TurnKey and the SEC in October, Curry said.

Over the course of the discussions, the letter shrank from more than 20 pages to its current 13-page iteration. Despite all the contact, Curry said, the company was not sure it would attain relief until the SEC’s letter came out this morning.

“They’re good poker players,” he said.

We spoke to Curry, who serves on two technology committees of the Florida Bar Association, in detail about how he was able to shepherd TurnKey through to this phase of its business model.

First step: Call Washington

The SEC would like entrepreneurs to begin by contacting its staff, and that’s what TurnKey did.

“TurnKey Jet is highly regulated,” Curry began. It interacts with multiple transportation and public safety agencies, which made the company very hesitant about entering the controversial realm of initial coin offerings (ICOs).

“We decided rather than put any money into doing anything, we start with the SEC,” he continued. “We honestly thought it was a total long shot.”

While a positive step forward, it’s worth noting that a letter like this is not a get-out-of-jail-free card.

A source familiar with the process inside the SEC told CoinDesk:

“The no-action letter sets forth the conditions that the issuer would abide by in order to secure that no-action relief. It doesn’t bind the Commission, but it’s a pretty strong letter to have.”

Why a token, anyway?

Banking hours create a problem for the charter jet industry.

“Rich guys have wire money ready to go, but they are subject to banking hours,” Curry explained. “It’s a spur-of-the-moment thing.”

If there’s no money paid, they don’t go, Curry explained. And traditional financial rails can take too long.

A token allows TurnKey to pre-pay or to buy tokens from other members on the eventual network, potentially even exchanging value with cryptocurrency, such as bitcoin, if that works better at the last minute. The limitations presented by traditional banking moved the company to look for another option via the SEC.

Curry said that very little changed from the first letter to now, in terms of the facts. But he did mention one noteworthy adjustment: When TurnKey first submitted a request for relief, it mentioned ethereum as a potential blockchain for running its token. The final letter is agnostic in terms of which blockchain technology it will use.

TurnKey will begin investigating options “post-haste,” Curry said, noting that building its own solution is completely off the table.

“We’re not going to invent our own from scratch,” he said. He mentioned solutions form Microsoft, IBM and others, while not ruling out public blockchains.

“The tokens will be standards compliant,” Curry said. “It’s not going to be any unique kind of token.”

SEC’s wheelhouse

TurnKey presented the kind of fact set that the SEC was looking for to render a no-action letter, Curry said, adding:

“We have good facts. That’s exactly what they said on one of the calls. It’s very easy to pass the Howey Test and be a security. Our model fails the Howey Test and is not a security.”

Curry discussed the benefits of a blockchain to the business in detail on the second page of his latest letter, but he also drew attention to Pages 10 and 11 of the SEC’s new distributed ledger guidance document, which describes an online retailer offering crypto-based store credit.

“That’s what we are,” he said. “We’re really the first example of that paragraph.”

Charter jet image via Shutterstock

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