US State Senators Introduce Bill Exempting Tokens From Securities Laws

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Twelve Wyoming Representatives and Senators have introduced a bill backed by the Speaker of the House to exempt “blockchain tokens” from “securities and money transmission laws.”

Rep. Tyler Lindholm, a Republican member of the Wyoming House of Representatives, said “Wyoming is stepping up to welcome the blockchain community with open arms,” before further adding:

“We view non-securities blockchain tokens as a new asset class that is neither money nor securities, and therefore believe existing money transmitter and securities regulations should not apply.

In many cases, for example, such blockchain tokens are simply prepaid software licenses. If tradeable gift cards and prepaid cell phone minutes are not regulated as money or securities, why should prepaid software licenses fall into those categories?

Wyoming’s consumers will be protected by its strong anti-fraud and consumer protection laws, which we believe are sufficient to deter bad actors from doing business in the state.”

The eight page accessible and very readable bill says: “A developer or seller of an open blockchain token shall not be deemed the issuer of a security… if the token has not been marketed by the developer or seller as an investment; the token is exchangeable for goods or services; and the developer or seller of the token has not entered into a repurchase agreement of any kind or entered into an agreement to locate a buyer for the token.”

If this bill passes, it would be the first token specific law in the world passed by any elected legislative body. Its persuasive power, therefore, in any state or federal court, within and outside of US in free lands, might be considerable because it would be the only indication by the elected on how tokens should be treated.

The United States has a dual system. At the very top, binding it all, is the Constitution. Right underneath is federal law. Then state constitution. Then state law. Then judge made law through case precedents.

In any conflict between state law and federal law, federal law prevails, within the specific state and outside of it. But where tokens are concerned, there is no federal law that specifically applies to them.

The only thing that exists is an interpretation of general federal laws by the Securities and Exchanges Commission, a non-legislative and an unelected body.

Their interpretation has never been challenged in an adversarial court setting, therefore no one knows whether a sufficiently senior court would agree with them or not.

The passing of a Wyoming bill in an elected house might make the task of SEC prevailing in any court a lot more difficult, because the judiciary would in such situation be interpreting a very new invention, and therefore would be making law.

Due to the separation of powers, the judiciary should not be making laws, nor should the SEC, as an executive arm of the government, be making any laws. Only parliament, or in US the congress and State congresses, have the legitimate power to make laws.

The judiciary, therefore, might have to give the Wyoming bill prevalence over any of their own interpretation or of that of the SEC, because it would be the only token specific bill passed by an elected legislative body.

That’s, of course, until Congress passes a tokens law, which would necessarily prevail, or until another state passes a different law, so taking away “the only token specific bill passed by an elected legislative body.”

However, the Wyoming bill seems to be applying current case law in specifying tokens are not securities when they have a utility, as is well settled.

In doing so, they assist by clarifying and even defining when a token has such utility through their three conditions, not promoted as investment, exchangeable for goods or services, and without repurchase agreements.

This bill, therefore, even if it doesn’t pass, has assisted this space and might put a stop to what some see as SEC’s over-reaching, but if it passes it might change the national debate, in US and more widely.

It might also make the remote state more attractive for miners and blockchain businesses if the listed representatives do take the honor of being the first legislative body to pass a tokens specific law.

 

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Very well-written and informative piece. Nicely done.