01 Nov 2017 Katerina Klinkova
Bytom Passed the SEC Howey Test
The report issued by Velton Zegelman PC reviewed the technical and economic white paper of the coin, including the token sale-related documents supplied by the Chinese Zhonglun W&D Law Firm. The analysis in the report stated that Bytom did not comprise any security and would not be supervised by SEC.
Commenting on the success, Duan Xinxing, co-founder of Bytom, stated that blockchain and fintech companies must be legal and focused on delivering continuous technological innovation if they wish to be mainstream. He revealed the company’s plans to prioritize tech innovation and business compliance of the network while promoting the steady, sustainable, and continuous development of Bytom.
The “Howey Test” aims to determine if a financial instrument is a “securities” and an “investment contract”, essential for the US law and regulations. The test evaluates Investment of Money, Common Enterprise, Expectation of Profits, Solely from the Efforts of Others.
With regards to the Investment of Money factor, the test checks if the investment includes more than the capital provision, assets, and cash, but also services, goods, and a promissory note. As those who buy BTM coins pay with cryptocurrency, it is unquestionable that there is an investment of money in exchange for BTM.
The Common Enterprise factor verifies that the common enterprise actually exists. This is achieved by the implementation of 3 approaches: Horizontal Commonality; Narrow Vertical Commonality; and Broad Vertical Commonality. Considering the Broad Vertical Approach, BTM’s performance is not satisfactory, as the success of the investor is not tied to the success of BTM.
With regards to the Expectation of Profits, the report indicated that a profit does not mean that the investment contract is a security.
Finally, the Solely from the Efforts of Others analysis showed that profits can be made from the use of BTM rather than holding the tokens.
The report concluded that the iteration of Bytom White Papers is not likely to be considered a security under the current US laws, as Bytom fails to meet all four factors to be considered as an investment contract and to invoke the protection of the Securities Act and Exchange Act.
The recommendations of the report suggest regular consulting due to the continuously evolving landscape. Bytom was advised to plan its operations carefully and to monitor the issues of the blockchain and cryptocurrency industry.
Bytom is the first Chinese project to submit its structural design and operations to an overseas law firm for audit and analysis.
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