Block chain, bitcoin and other cryptocurrencies, and ICOs have dominated recent headlines. While excitement continues to grow around this rapidly expanding space, there still seems to be a lot of unanswered questions. Roger Royse, founder of the Royse Law Firm, will discuss the legal issues that may determine the future of these emerging technologies.

1. CROWDFUNDING/CRYPTO/ICOS 2018
IRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in this communication,
including any attachment to this communication, is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding penalties
under the Internal Revenue Code or (2) promoting, marketing or recommending to any other person any transaction or matter addressed herein.
Roger Royse
Royse Law Firm, PC
rroyse@rroyselaw.com
www.rroyselaw.com
Skype: roger.royse
Twitter @rroyse00
BITCOIN, BLOCK CHAIN, CRYPTOCURRENCY AND ICOS:
A LEGAL PERSPECTIVE

2. Disclaimer
No information contained in this presentation is to be construed as legal advice. No
information contained in this presentation is intended or related to any particular factual
situation. Nothing herein forms an attorney-client relationship. If legal advice or other
expert assistance is required, the services of a competent professional should be sought.

3. • Blockchain is a shared unalterable ledger for recording the history
of transactions
• Trust, accountability and transparency
• Decentralized, permanent, unalterable
• Banking and Payments, Cyber security, Shipping and Logistics
Supply Chain, Agriculture, Forecasting and prediction, ride
sharing, cloud storage, charity, voting and government, public
benefits, energy management
Blockchain Technologies

4. Blockchain Technologies
• Banking and Payments
• Cyber Security
• Agriculture
• Shipping and Logistics
• Supply Chain
• Forecasting/Prediction
• Crowdfunding
• Healthcare
• Energy
• Securities ownership
• Insurance
• Real Estate
• Ride sharing
• Cloud storage
• Charity
• Voting
• Government
• Public benefits
• Online music
• Retail

5. • Traceability
• Order + Inventory
• IOT Integration
• Transportation Management
• Certification
Organic Food
Grower
Certified
Organic
Shippers Wholesaler Retailer Consumer
$
Products
$
Products
$
Products
Blockchain Use Case: Smart Contract

6. Blockchain: Legal + IP Issues (Patents)
• Patent - Bank of America, NASDAQ
• Open Source - Hyperledger
• Patent Pledge - Blockstream (will not sue)
• Patent Pool – similar to Open Invention Network (Linux)
Patent gives right to exclude all others in U.S. from making invention for duration of patent (20 years)

7. Blockchain: Legal + IP Issues (Trade Secret)
A trade secret is any information that
• is not generally known to the public;
• confers economic benefit on its holder because the information is not publicly known; and
• is the subject of reasonable efforts by the holder to maintain its secrecy.

8. • Community supported crowd sale of cryptocurrency tokens issued by startups based on
private Blockchain technology
• Creates liquidity and growth equity without giving up equity in a company
• Tokens are sold in exchange for Bitcoin, Ether, or government fiat
• No clear tax guidance
• Regulatory Guidance: Canada, UK, Hong Kong, Thailand, Switzerland, Australia, Gibraltar,
Singapore
• Bans: China, South Korea, Macau
Initial Coin Offering (“ICO”)

9. • In certain cases, the tokens or coins will be securities and may not be lawfully sold
without registration with the SEC or pursuant to an exemption from registration
• Will depend on the facts and circumstances including the economic realities of the transaction
• Tokens can have different utilities and rights
• Regulation A, Regulation D, or Regulation CF can be used
• Potential CFTC and FinCEN Compliance
• US vs. Offshore Offering
• Investment Company Act – 100 investors or qualified purchasers ($5 million
investments)
• “Exchanges” under sec. 3(a)(1) of 1934 Act
• Disclosure – White Paper
• Security (remember the DAO)
• PR + Marketing
ICOs (cont.)

10. Issuer
Law
• Securities Law
• Tax
• AML/KYC
• Anti Fraud
• FINCEN
• CFTC
• FTC
• Investment Company Act
• Exchange Act
$
Step 2: Build
Platform
Step 1:
Pre-Sale
$orCrypto
SAFT
Investors
Step 3: ICO
Tokens
Investors
The ICO: Crowdfunding on Steroids
Team
• Legal US
• Tax US
• Foreign Legal
• Compliance
• Marketing
• KYC/AML
• ICO Economies
• Blockchain
Technical
Utility
• Use of Token
• Secondary Trading
• Scarcity
• Voting + Democratized

11. • SEC Chairman and CFTC Chairman’s February Testimony before the Committee of Banking, Housing, and Urban
Affairs: “…structures of ICOs that I have seen involve the offer and sale of securities and directly implicate the
securities registration requirements and other investor protection provisions of our federal securities laws.”
• SEC Chairman Clayton: Market professionals and gatekeepers must act responsibly and hold themselves to high
standards. In the ICO space "they can do better”.
• SEC warned against ICO Sponsors not making adequate disclosures and cautioned market participants against
promoting or touting the offer and sale of coins without first determining whether the securities laws apply to
those actions.
• Family Resemblance test (Reeves)
• Multi factor test applied to notes
• Howey Test
• An investment of money, in a common enterprise, with a reasonable expectation of profits, and to be
derived from the entrepreneurial or managerial efforts of others.
• The Risk Capital Test
• The sale of membership to a country club was a security; substance over form
• Investors were risking their capital in expectation of receiving the benefits of club membership, which was in
the control of the issuers of the membership
Is my token a security?

12. • The SEC’s Cyber Unit - Division of Enforcement
• focused on misconduct involving distributed ledger technology and ICOs, the spread of
false information through electronic and social media, brokerage account takeovers,
hacking to obtain nonpublic information and threats to trading platforms and works
closely with the SEC’s cross-divisional Distributed Ledger Technology Working Group
• DAO Token – model described by one of the DAO founders as similar to “buying shares in a
company and getting…dividends”
• Munchee - restaurant meal reviews
• SEC halted cease and desist – unregistered securities
• ICO targeted investors, who had an expectation of future profits, rather than users of
the products, with intention to use proceeds to develop application and future
“ecosystem”, which would increase the value the MUN token
• Marketing materials stated additional development and ecosystem would increase
the price of the MUN token and could trade on secondary market within 30 day after
ICO
Enforcement Actions

13. o Rule 506
o 506(b): No general solicitation/advertising; accredited and 35 sophisticated
unaccredited investors; preempt state law regulations
o 506(c): Broad solicitation/general advertising; all accredited investors; issuer
takes “reasonable steps” to verify accredited status; preempt state law
regulations
o Reg A
o Tier 1: $20M in 12-month period; unlimited accredited and unaccredited
investors; state laws not preempted (Blue Sky laws); unlimited accredited and
unaccredited investors
o Tier 2: $50M in 12-month period; unlimited accredited and unaccredited
investors; solicitation okay for testing interest; all investors; state law
regulations preempted
o SAFTs
o Securities law compliance: allow exempt offering
o Redeem for utility token once platform is functional
Rule 506 and Reg A

14. US Platform Co. Cayman ICO Co. Singapore ICO
Foundation
$
$
SAFT
$
tokens
Token Securities Compliance
Step 1
Step 3: Cash to
US Co.
$
Step 2: ICO
Issuance
1) 506 – All accredited
2) 506/Reg S foreign targeted offering
3) Non US offering
4) Foreign Utility Tokens – not a security
5) Reg A+
6) Register with SEC
7) Sec 4(a)(2) private offering
Resale
Rule 144 (12 month holding)
Section 12(g)
Rule 12g3-2(b)

15. FINCEN FEB 13 LETTER
Financial Crime Enforcement Network (FinCEN), Dep’t of Treasury letter to Senator Ron
Wyden (D- Ore)
1) A developer that sells convertible virtual currency (i.e., bitcoin, ether, ripple, etc) including
in the form of ICO coins or tokens, in exchange for another type of value that substitutes for
currency is a money transmitter and must comply with AML/CFT requirements that apply to
this type if MSB ( and register as a MSB with FInCen - a form filed annually and disclosure of
some financial information).
2) An exchange that sells ICO coins or tokens, or exchanges them for other virtual currency,
fiat, or other value that substitutes for currency, would typically also be a money transmitter.
3) FinCEN AML/CFT rules likely do not apply to ICO structures where (a) the tokens are offered
as securities - SEC jurisdiction and their AML/KYC requirements or (b) future interests in
commodities - CFTC jurisdiction and their AML/KYC requirements.

16. • Went into effect June 19th
• States do not like Tier 2
o Tier 2, per the JOBS Act, only preempts state registration for “qualified
purchasers” with the seeming intent to not totally preempt the states
o However, the SEC defined “qualified purchasers” to mean all Tier 2
purchasers
o State securities regulators resent this loss of power
• States have been creating a multistate single-registration process to make
Tier 1 more palatable, and to show they deserve to not be preempted
• The “mini-IPO” of the new Regulation A has excited investors, and for many
companies may be better than relying on the crowdfunding exemption
o Including for offerings done via Internet portals
Reg. A – History (cont.)

17. Data of 2016
Source: http://www.mofojumpstarter.com/2017/02/08/updated-market-statistics/#
• From its effective date in June 2015 through December 2016, there
were 171 Regulation A offerings filed. Of these, 76 were Tier 1
offerings and 95 were Tier 2 offerings.
• The aggregate proceeds sought to be raised in the filed deals was
approximately $3 billion.
• There were 97 offerings qualified. Thus far, $238 million has been
reported sold, though more complete data will be available when
issuers file their reports in a few months.
Regulation A+

18. • Two kinds of Reg. A offerings, called “tiers”, with different qualities:
Issue Tier 1 Tier 2
State law regulations? Not preempted;
multistate
coordinated review
program to help
Preempted
Maximum amount raised? $20 M in 12 months,
up to $6M of which
from current holders
$50 M in 12 months, up to $15M
of which from current holders
Per investor maximums? None Up to 10% of greater of non-
accredited investor’s net worth or
net income; unlimited for
accredited
Investor limitations Accredited and non-accredited okay
Issuer limitations Cannot be public, shell company, bad actor, those failing
certain SEC compliance rules
Reg. A – Two Options (“Tiers”)

19. Issue Tier 1 Tier 2
Solicitation, advertising Testing for interest, soliciting OK, though notices needed
and materials may be exhibits on SEC filing; potential to
keep confidential SEC filings during this time
Initial disclosures Financial statements
for past two years,
plus offering circular
Same as tier 1, plus audited
financials
Disclosure to buyers? Circular or most recent Tier 2 report due to buyers by
specific time before sale
Ongoing disclosures File exit report at
end of offering
Yes, if 300+ holders; annual,
semiannual, and current events.
Limitation on need for full
Exchange Act registration
Securities restriction Unrestricted; affiliates have some limitations
Allowed securities? Asset backed-securities banned
Integration safe harbor Exists; allows non-US and crowd-funding to be separate
Reg. A – Continued

20. Issue 506(b) 506(c) Reg. A Tier 2
State law
regulations?
Preempted Preempted Preempted
Maximum amount
raised?
Unlimited Unlimited $50 M in 12 months, up to
$15M of which from
current holders
Per investor
maximums?
Unlimited Unlimited Up to 10% of greater of
unaccredited investor’s
net worth or net income;
unlimited for accredited
Investor limitations Unlimited
accredited, and
35 sophisticated
non-accredited;
self-certification
standard
Accredited
only, and issuer
must take
steps to certify
they are
accredited
Unlimited accredited (self-
certified), unlimited non-
accredited
506(b), 506(c), and Reg. A Tier 2

21. Issue 506(b) 506(c) Reg. A Tier 2
Issuer limitations No bad actors No bad
actors
Cannot be public,
shell company, bad
actor, those failing
certain SEC
compliance rules
Solicitation,
advertising
Banned Soliciting of
anyone is
allowed
Testing for interest,
soliciting OK
Initial disclosures Non-accredited:
Equivalents of what they
get in registered offering,
plus anything accredited
investor can get
For accredited, see 506(c)
Optional;
must be
available to
answer
questions
Financial statements
for past two years
disclosed, plus
offering circular
with audited
financials
506(b), 506(c), and Reg. A Tier 2 (cont.)

22. Issue 506(b) 506(c) Tier 2
Ongoing disclosures Form Ds Form Ds Yes, if 300+ holders;
annual, semiannual, and
current events. But special
exemption from Exchange
Act registration until over
$75M float.
Share restriction Restricted for a
year
Restricted for a
year
Unrestricted; affiliates still
have some limits
Allowed securities? ABS not
specifically
banned
ABS not
specifically
banned
Asset backed-securities
banned
506(b), 506(c), and Reg. A Tier 2 (cont.)

23. SEC MARCH 7 PUBLIC STATEMENT
Statement on Potentially Unlawful Online Platforms for Trading Digital Assets
Divisions of Enforcement and Trading and Markets
March 7, 2018
Online trading platforms have become a popular way investors can buy and sell digital assets,
including coins and tokens offered and sold in so-called Initial Coin Offerings ("ICOs").
If a platform offers trading of digital assets that are securities and operates as an "exchange,"
as defined by the federal securities laws, then the platform must register with the SEC as a
national securities exchange or be exempt from registration

24. Tax Considerations
• Equity?
• Debt?
• Capital asset?
• Barter exchange?
• Prepaid goods or services?
• Subpart F Issues: CFC/PFIC?
• Deferral?
• Open - transaction?
• Forward contract ?
• Executory Agreement to Sell?
• Information Reporting
• FATCA
• FBAR

25. • Section 965: Transition Tax
• Section 245A: Participation Exemption
• Section 951A: Global intangible low-taxed income (“GILTI”)
• Section 250: Foreign-derived intangible income (“FDII”)
• Subpart F
• Passive Foreign Investment Companies (PFIC)
• Transfer Pricing Rules
• Tax exempt organizations vs associations
International Tax Rules

26. • One time inclusion of E+P of certain foreign corporations
• Effective tax rates of
• 15.5% to extent of cash
• 8% non cash assets
Section 965 – Transition Tax

27. • Deduction for certain foreign source dividends from 10% owned foreign
corporation paid to domestic corporation
• Modified territoriality
Section 245A – “Participation Exemption”

28. • Foreign minimum tax on GILTI of 10.5% until 2025
• Based on net income less deemed return on tangible assets
Global Intangible Low-taxed Income (“GILTI”)

29. • C corporations
• Foreign net income in excess of deemed return on tangible assets
• 37.5% deduction
• Effective tax rate of 13.125% (until 2025)
Foreign-derived Intangible Income (“FDII”)

30. • Certain types of mobile income (SPF income) of controlled foreign corporations
(more than 50% owned by US shareholders) taxable as deemed dividends to US
shareholders (10% owners)
Subpart F

31. • U.S. persons owning shares of a passive foreign investment company (PFIC)
have either (i) current taxation on the income of the PFIC (under a QEF
election) or (ii) a deemed tax and interest regime.
PFIC

32. • Code Sec 482 requires transactions between related parties to be at arm’s
length
Transfer Pricing

33. • Charitable
• Civic Leagues
• Clubs
• Business Leagues
• Etc.
• Not organized for profit
• No private investment
• Prohibited transaction: loss of status
• Disregarded as agent or nominee
Tax Exempts: 501(c)

34. US Platform Cayman Swiss
Foundation
$ or crypto
tokens
ICO Structure Tax Vulnerabilities
utility
$
1) Treatment of Swiss Co
2) Subpart F incomes
3) Transfer price
4) GILTI tax

35. • Commodity Futures Trading Commission (“CFTC”)
• Commodity “Interests”
• Financial Crimes Enforcement Network (“FinCEN”)
• Money Services Business: user, administrator, exchanger
• Money transmitters licenses: state-by-state requirement
• IRS: Tax Considerations
• Consumer Protections
• Breach of contract, false advertising, fraudulent or negligent
inducement
• Industry Specific Regulations
• Global Regulatory Regimes
• FTC
Other Interested Agencies

36. ROYSE LAW FIRM, PC
Contact Us
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m
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