Lawyers for Security Token Offerings (STOs)

Experienced STO Team

Do you need assistance launching an STO? Are you curious about STOs but are wondering what the process, costs, and implications are? If so, then you need the assistance of an STO attorney.

Alina Veneziano
Attorney Alina Veneziano
Security Token Offerings & CPA
Team Leadenvelope iconContact Alina directly
Paul Strickland
Attorney Paul Strickland
Security Token Offerings
Team Lead
Tim Allen
Tim Allen
Security Token Offerings Team
Former U.S. Secret Service Special Agent

Security token offerings, or STOs, are public offerings where tokenized digital securities stored on the blockchain are offered to certain investors on online exchanges.

STOs are favored by regulatory agencies because they are compliant with securities legislation, which is often not the case with ICOs.

That said, the compliance obligations and costs are substantial. Failure to comply with all registration (or exemption), reporting, disclosure, and anti-fraud provisions can subject you and your offering to fraud allegations and a federal investigation.

To guard against these risks, it is important to secure the advice of counsel experienced in STOs. Finding attorneys who deal with STOs can be challenging, as this is a novel type of offering.

At Oberheiden, P.C., we have a dedicated team of blockchain attorneys knowledgeable in STO—from launching the security tokens to follow-up compliance obligations.

Do not wait to get the advice you need about launching an STO. Put Oberheiden, P.C. on your side today to guide you through this unique and emerging area.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden



Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney


Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

What is an STO?

STOs are offerings of security tokens that serve as digitalized stocks, bonds, equities, or other securities. Companies that wish to engage in a digital offering to investors that is compliant with the federal securities laws will typically launch an STO.

Security tokens serve the same function as traditional securities, except that they are issued on either permissioned or permissionless blockchains. They represent a stake in the asset or the company and generally offer the same or similar rights—such as voting rights and dividends.

STOs came about from the uncertainty and lack of regulation surrounding ICOs. ICOs quickly became popular means of raising capital for businesses. Virtually any individual or entity could launch an ICO.

The problem with ICOs is that they are unregulated and are more likely to involve fraudulent schemes to harm investors or threaten U.S. capital markets.

ICOs have been and remain the subject of federal investigations and prosecutions. Thus, STOs were born.

STOs allow for entities to issue a digital token using blockchain technology but in a way that is compliant with securities legislation. Because of this, the registration, reporting, and disclosure obligations for entities are often significant.

Security Tokens Explained

SEC Regulatory Authority: Security Tokens versus Utility Tokens

Security tokens are issued via STOs and must be registered with the Commission or satisfy an applicable registration exemption. They are digital shares in a company—like a digitalized IPO.

The value of a security token is pegged to the value of the company. This means that if the company’s value increases, so too will the value of the security token and vice versa.

On the other hand, utility tokens are generally offered via ICOs and are likely not registered with the Commission nor are they subject to regulation. They can only be used within a closed ecosystem—like an arcade token.

The value of a utility token is not connected in a way to the company’s value. Utility tokens only give the users the right to receive the purpose for which the utility token was developed.

This distinction is important because utility tokens need not be registered with the SEC nor comply with the ongoing reporting and disclosure obligations since they are not “securities.”

However, security tokens must comply with all registration (or exemption), reporting, or disclosure—just like with traditional IPOs.

The disadvantage of utility tokens is that they are unregulated and thus there is a significant risk of fraud and manipulation. The disadvantage of security tokens is the costs of registration.

A Brief Explanation of the “Howey Test”

Sometimes, whether the token is even a security in the first place is a tricky issue. There is often a fine line between a token that is a security and thus requiring SEC registration (or an exemption) and whether a token is not a security (not requiring any oversight).

The SEC uses the Howey Test to determine whether an asset, coin, token, or other valuable item or contract is a security, or “investment contract” for registration purposes.

The Howey Test was articulated from a 1946 Supreme Court opinion, SEC v. W. J. Howey Company, 328 U.S. 293 (1946). The test has four elements:

  1. An investment of money;
  2. Invested in a common enterprise;
  3. With expectation of profits;
  4. Derived from the efforts of third parties.

All elements must be satisfied for an asset to be a security, or “investment contract.” If only one element is unsatisfied, the asset is not a “security.”

Types of Security Tokens

Security tokens are generally classified in one of three categories: (1) equity tokens; (2) debt tokens; or (3) asset-backed tokens.

Equity tokens function much like traditional stock: they are ownership interests in the company entitling the holder to a portion of the company’s profits as well as to voting rights within the company.

Debt tokens refer to a debt that functions much like a short-term loan on an interest rate for a principal amount that was lent to the company. The blockchain stores various data about the debt token such as repayment terms.

Lastly, asset-backed tokens are digital assets that have characteristics much like commodities such as gold, silver, and oil. Asset-backed tokens work on blockchain technology, which makes commodities trading more secure.

From ICOs to STOs

ICOs were introduced in 2013 and became immensely popular in 2017. They quickly became a means for entities to access capital quickly and without all the regulatory burdens of a traditional IPO.

That said, despite the popularity, ICOs were unregulated and therefore fraud and theft were common. Investors lost their money and capital markets were harmed.

The SEC initiated multiple investigations for fraud and unregistered securities offerings. The increase in federal investigations for fraudulent ICOs led to a decline in participation in ICO market activity.

Thus, STOs surfaced as a solution to both he fraud and SEC compliance issues. STOs solve the lack of oversight problem because they must be registered with the Commission, or the offering must meet an applicable exemption.

They also solve the fraud issue because investors have access to all remedies for breaches or violations of the securities laws. Issuers are less likely to engage in fraud due to the extensive reporting and disclosure requirements.

ICOs can involve any coin for any purpose. ICOs are issued to the general public anywhere in the world. Anyone with the proper tech, product, idea, and money can launch an ICO.

That said, STOs must be backed by something of value such as the assets of the company. STOs are generally only available to institutional investors.

How an Attorney Can Help with Your STO

An attorney can assist individuals and companies launching an STO—from the initial launch to the ongoing reporting and disclosure obligations.

Below are ways that the blockchain attorneys at Oberheiden, P.C. can help you:

  • Structuring the token offering to your needs—including token pricing and risk evaluation;
  • Analyzing whether the token is a security token or a utility token;
  • Advising on ongoing compliance obligations;
  • Developing entity-wide AML/KYC policies;
  • Advising the entity on trading on the secondary market;
  • Drafting PPMs, subscription agreements, and investment contracts;
  • Defending against federal investigations involving the token offering;
  • Tax issues about the token offering;
  • Determining how to structure your STO under an applicable registration exemption; and
  • Applying the Howey Test to the digital asset or contract at issue;

If you have a question on any of these issues or an additional issue, give us a call right away.

Need Advice with Your STO?

STOs are a recent innovation that involve issuances of digital assets to a limited investor type. These offerings are compliant with the federal securities laws—which makes them more reliable than ICOs.

That said, STOs are more costly than ICOs and entail many reporting and disclosure obligations not to mention the registration (or exemption) process.

If you need assistance structuring your STO, then you need the advice of a blockchain attorney experienced in token offerings—notably STOs.

At Oberheiden, P.C., we can guide you through the process of launching an STO, getting compliant with applicable laws and regulations, and maintaining your reporting and disclosure obligations.

Do not wait to get the advice you need on this novel type of digital asset offering. Call or contact us today for a free consultation.

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