memorandum - otn · pdf fileii. the otn.assets: the otn.assets are created by the...

MEMORANDUM

From: Empire Global PLLC | IRUKE LAW FIRM PLLC

EMPIRE GLOBAL PARTNERS, LLCTHE IRUKE LAW FIRM, PLLC, Managing [email protected] Global Professional Services FirmWorldwide Professionals, Local Experience. http://www.empireglobal.partners

Re: Preliminary assessment of the status of ‘OTN Tokens’ proposed to be distributed in

various stages across online trading platforms and their subsequent trade through ‘Crypto

Currency Exchanges.’

Summary: On the basis of the information on the website of the OTN Foundation (as on the

date of issuance of this Memo) and the white paper provided by them, it is unlikely that

‘OTN Tokens’ are securities.

CONTENTS

A. BACKGROUND...............................................................................................................1

B. QUERY:.............................................................................................................................4

C. ISSUES DEALT WITH IN THE MEMORANDUM:...................................................4

D. UNDERSTANDING THE SEC REGULATIONS AND IDENTIFYING IF THE

TOKEN WOULD BE REGULATED AS A SECURITY......................................................5

I. United States of America..............................................................................................5

a) The definition of ‘Security’ prescribed under legislations........................................5

b) The Howey Test...........................................................................................................8

c) The Risk Capital Test in certain states.....................................................................19

1

A. BACKGROUND

‘Open Trading Network’ (‘The OT Network’) is a new venture by The Open Trading

Network Foundation, a non-profit organization registered in the canton of Zug, Switzerland

which plans to ‘combine isolated blockchain networks into a unified open network’. The OT

Network will ‘merge isolated blockchain networks to create the infrastructure of the future’.

The OT Network will have a number of components including:

OTN Token (‘Token(s)’): Ethereum based tokens which are proposed to be released

and later traded on crypto currency exchanges. OTN Wallet: Multi currency wallet to buy and sell crypto currencies OTN Exchange: Platform for tokenization of crypto assets, trading of Assets etc. OTN.x: The network within the network which will form the backbone for the

entire framework OTN Depository: Platform to connect depositories to the OT Network. A depository

provides collateral to any ‘tokenization’ function which the ‘Tokenizer’ performs in

the OTN Exchange. OTN Clearing: The clearing house for OT Network OTN Business: Payment solutions for small businesses built on the OT Network OTN Explorer: Product to enable retrieval of any transaction data from the OT

Network

In addition to the Token, the OT Network is dependent on two further modes of storage of

value:

i. The OTN Coins (‘Coin(s)’): The OTN Coins are the primary medium of store of value

within the OT Network and they are used to pay for transactions in the OT Network

and receive remuneration for any services performed within the network.The Coins and Tokens are related because Tokens can be converted to Coins in

1:1 ratio. No method for conversion of Coins to Tokens is provided.

2

ii. The OTN.Assets: The OTN.Assets are created by the ‘Tokenizer’ when they convert

any other cryptocurrency to this form for further trading in the OT Network. Once

converted in OTN.Assets form, the cryptocurrency can now be traded within the OT

Network. Various forms of OTN.Assets can be created1 depending upon the

cryptocurrency and one form of OTN.Asset can also be exchanged for the other.2

It has to be noted here that:

(a) The conversion of the Tokens which will be distributed is the ‘only’ mode for

creation of the Coins.(b) The Tokens at present have value as medium for payment of broker commission

in the crypto currency trading platform ‘IQ Option’ and in future will have

value as they can be sold and purchased on external exchanges.

There are a total of 100,000,000 Tokens which will be released. It is not known if this is the

final number of Tokens or more Tokens can be created.3

As of now, there are 4 (Four) ways of obtaining the Token:

i. As a part of 42,000,000 Tokens which will be given to future users of the OTN

platform in the next 24 months. They will be distributed to:(a) Traders who traded crypto currencies on the ‘IQ Option’ platform in ration of

their trade in the platform in the previous week.(b) In a yet unknown manner among users of the OTN Wallet.(c) To users who already hold the OTN Token. .

ii. As a shareholder or member of IQ Option who will receive Tokens as a favour for the

financial support by them to OTN Foundation.iii. Through purchase on crypto exchanges where they will be sold in the future by Token

holders

1 Page 16 of the White Paper (Version 1).


3 No information regarding this is provided in the Whitepaper.

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iv. OTN Foundation itself will hold a certain number of Tokens for future distribution

and strategic partnership.B. QUERY:

The release of ‘Tokens or Coins’ has come under strict scrutiny as many of them are

considered as ‘Initial Coin Offerings (ICO’s)’. ICO sector has come under cloud in some

countries owing to the release of the Investor Bulletin by the SEC on 25 July, 2017 under

which they have sought to inform the investors that certain ICO’s may have characteristics

which may be similar to securities and hence they may be regulated as securities by the SEC.

In the present scenario, an opinion has been sought on the whether the Token possesses

characteristics similar to securities considering its features and mode of distribution.

C. ISSUES DEALT WITH IN THE MEMORANDUM:

In the present Memorandum (‘Memo’) we deal with the following issues:

Understand whether the Tokens which are planned to be released would be classified

as : a) ‘securities’ under the laws of USAb) ‘Collective investment scheme’ or ‘securities’ under the laws of Singapore

The rating for the current Tokens under the Howey Test Evaluation of the Tokens under the Risk Capital Test

D. UNDERSTANDING THE SEC REGULATIONS AND IDENTIFYING IF THE

TOKEN WOULD BE REGULATED AS A SECURITYI. United States of America

4

The recent Investor Bulletin by the SEC opened the possibilities that Tokens and ‘Coins’

could possibly be regulated as ‘Securities’. The SEC in its Bulletin dated 25 July, 20174 states

that “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.” The

determination whether a particular ‘Token’ or a ‘Coin’ is security is done through an

evaluation of the features and the rights which are associated with the Coin.

The determination of whether a particular financial instrument is a security can be normally

done through an evaluation of the ‘Token’ through

(a) the definition of ‘Security’ in the Securities Act, 1933 and the Securities Exchange

Act, 1934(b) the Howey Test(c) The Risk Capital Test in certain states

We make the evaluation under these three parameters for the ‘Token’ in the sections below.

a) The definition of ‘Security’ prescribed under legislations

The Securities Act, 1933 and the Securities Exchange Act, 1934 are the two primary

regulations governing the definition of a ‘security’.

The Securities Act, 1933 under Section 2(1) (a) defines a ‘security’ as “any note, stock,

treasury stock, security future, security-based swap, bond, debenture, evidence of

indebtedness, certificate of interest or participation in any profit-sharing agreement,

collateral-trust certificate, preorganization certificate or subscription, transferable share,

investment contract, voting-trust certificate, certificate of deposit for a security, fractional

undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or

privilege on any security, certificate of deposit, or group or index of securities (including any

4 The Investor Bulletin can be accessed at https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings

5

interest therein or based on the value thereof), or any put, call, straddle, option, or privilege

entered into on a national securities exchange relating to foreign currency, or, in general, any

interest or instrument commonly known as a ‘‘security’’, or any certificate of interest or

participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or

right to subscribe to or purchase, any of the foregoing.”

Section 3(a) (10) of Securities Exchange Act, 1934 defines a security as:

The term “security” means any note, stock, treasury stock, security future, security-based

swap, bond, debenture, certificate of interest or participation in any profit-sharing agreement

or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate,

preorganization certificate or subscription, transferable share, investment contract, voting-

trust certificate, certificate of deposit for a security, any put, call, straddle, option, or

privilege on any security, certificate of deposit, or group or index of securities (including any

interest therein or based on the value thereof), or any put, call, straddle, option, or privilege

entered into on a national securities exchange relating to foreign currency, or in general, any

instrument commonly known as a “security”; or any certificate of interest or participation in,

temporary or interim certificate for, receipt for, or warrant or right to subscribe to or

purchase, any of the foregoing; but shall not include currency or any note, draft, bill of

exchange, or banker’s acceptance which has a maturity at the time of issuance of not

exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of

which is likewise limited.

The definitions, particularly under the Securities Exchange Act, 1934 are very comprehensive

and the Token could possibly be covered under it, if it provided rights such as a right of profit

or voting rights in the management of a Company. Interestingly, the definitions provide an

opportunity for the Courts to expand on the definition of a security.

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On a bare reading of the definitions we find that the Tokens could potentially fall within the

definition of a ‘security’ under

i. The 1933 Act, since they can be considered as a ‘certificate of interest or

participation in any profit-sharing agreement’. This can be derived from the fact that

Tokens can be directly converted into coins in 1:1 ratio and holder of Coins receive

remuneration as a part of commission distribution in the OT Network.5 ii. Under both the 1933 Act and the 1934 Act since the Coin may be considered as a

voting-trust certificate since all Coin holders are allowed to vote for major decisions

indirectly in the functioning of OT Network such as the amount of Commission to be

paid to the OTN.x network node owners. To provide greater clarity here, reference to

a ‘voting trust certificate’ has been made here owing to the possibility that holding

and issuance of coins to bulk coin holders such a IQ Option and OTN Foundation

may be considered as a “voting trust arrangement” since they may use the power of

holding a large majority of Coins to vote for favourable OTN.x network node owners,

thereby virtually converting their bulk holding of Coins to a unified block of votes

enabling them to secure greater profits.

So, although the Token may on a bare reading fulfil certain criteria mentioned in the

definitions provided under the Acts, it is generally considered as a security by the courts

subject to fulfilment of certain tests which has been designed by the higher courts. This

makes it essential to review the two major tests provided by the courts.

b) The Howey Test

For a better evaluation of the Token as a security, we will have to move to the four step

‘Howey Test’ which was framed in the famous case- SEC v. Howey Co., 328 U.S. 293 (1946).

5 Page 23 of the White Paper (Version 1): OTN economics and schemes for motivating network participants.

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In the ‘Howey test’, a particular instrument called “an investment contract” had to be

evaluated, if it could be considered as a ‘security.’

The Howey test laid down that: “… an investment contract for purposes of the Securities Act

means a contract, transaction or scheme whereby a person invests his money in a common

enterprise and is led to expect profits solely from the efforts of the promoter or a third

party…. Such a definition…permits the fulfilment of the statutory purpose of compelling full

and fair disclosure relative to the issuance of the many types of instruments that in our

commercial world fall within the ordinary concept of a security…. It embodies a flexible

rather than a static principle, one that is capable of adaptation to meet the countless and

variable schemes devised by those who seek the use of the money of others on the promise of

profits.” Broadly, it stated that “The test is whether the scheme involves an investment of

money in a common enterprise with profits to come solely from the efforts of others.”

The definition and observations put forward in the case were designed into a four part test

which has the following elements:

(a) An investment of ‘money’: The term used here is money, but in later case, it has been

expanded to include any money equivalents and it can be expected that in the future it

will also cover virtual currencies as can seen from the interpretation provided in the

FinCEN guidance.(b) In a common enterprise: A common enterprise has been divided into ‘vertical

commonality’ and ‘horizontal commonality.’ “Horizontal commonality” is a process

where money or assets from different investors are brought together in a common

pool and profits and risks are shared in some proportion.“Vertical commonality” on the other hand places emphasis on the relationship of the

parties and whether one is relying on the efforts of the other. If a commonality of

enterprise is found, regardless of the form it has taken, this factor in the test will be

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satisfied. Vertical commonality can further be broken down into “broad vertical

commonality” whereby the promoter’s profits are not tied to the investor’s profits and

“narrow vertical commonality” whereby the promoter only profits if the investor

profits.In any case, any form of commonality found may be considered sufficient to satisfy

the test.(c) An expectation of ‘profit’: Profits can be provided in any form ofinterest, dividends,

rental income, tax benefits, cash return, capital appreciation to name a few. Even

Ponzi schemes can be securities if they provide profits and also fulfil other tests.(d) Efforts of promoters: The investors do not have to put in any individual effort to

gain benefits and the promoters work to create profits for them. The investors gain the

benefits merely by being a part of the contract.

For simplicity in understanding whether the Token would qualify as a ‘security’, we have

evaluated the Token which is proposed to be released using a point based test which is based

on the features prescribed in the Howey test as follows:

Element 1: Investment of Money

Sl.No.

Characteristic Explanation Examplesof the

situation

Points to beadded ordeducted

Points forTokens to

bedistributed

1. If the token isproduced by amathematical functionand does not requireany money orinvestment of moneyto obtain them

Or

If the answer is‘Yes’, then theToken is notrelated tomoney and maynot be asecurity.

If the answer is

The Bitcoinis anexample ofa coinwhich doesnot involveany moneyas it couldbe obtained

Add 10points if youranswer is‘No’.

Add 5 pointsif the answeris partiallytrue, such as

5 (TheToken canbe obtained(a) by beinga memberorshareholderof the IQOption

9

The Token isdistributed for free orobtained only throughmining.

‘No’, then thereis a probabilitythat Token wasdistributedthrough acrowd sale orany othermoney basedallocationmethod andinvolved thechange of fiator digitalcurrency to thecoin at somestage.

by anyonethroughmining.

A crowdsale ofTokens maybe anexample ofa situationwhen theanswer is‘NO’.

partial pre-mining andpartialavailable stillfor mining.

team andtokens arebeingprovidedonly as afavour(b) bytrading inthe IQOptionplatform,the ratio ofcoinsobtained isdirectlyrelated tothe value offees paid onthe platformby theinvestor(c) Tokensare alsodistributedto previoustokenholders, butpreviousTokenholders maynot haveobtainedthem forfree. Theyobtained itby trading iton IQOption orby buying iton asecondaryplatform.All thesesituationsshow aninvestmentof money inan indirectmanner butno direct

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investment).

Total for Element 1: 5 points

Element 2: Common Enterprise

Sl.No.

Characteristic Explanation Examples ofthe situation


Points forTokens to

bedistribute

d2. The time when the sale

is undertaken. The laterto full functioning ofthe network, the lesslikely it is to be asecurity

(a) Pre deploymentThe developershave not yetbrought thenetwork intooperation andit is still inplanning orpreparation

The idea isavailable butit is still inwhite paperstage and thecrowd saletakes place

7 points tobe added ifthe answeris yes

----

(b) Test networkfunctioning

The networkhas beendeveloped andis under trial. Ithas howevernot yet beenimplementedfully.

The idea hasbeenimplemented,but thesystem is notyet fullyfunctionaland tests maybe underway.


6 (Thenetwork ispartiallyfunctional.)

(c) Network isfunctioning

The network isfunctional andthe idea hasbeenimplementedin practice.The system hasbeen tested andis fullyoperational.

The crowdsale has beenundertakenafter all theprocesses arein place.


---

Sl.No.


Points to beadded or

Points forTokens to

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situation deducted bedistributed

3. The type of returnswhich will be receivedby the Token holder

(a) Token holdersreceive samereturns

The returns ofthe Tokenholders are tobe paid in afixed mannerand equally onthe basis of theproportion ofcoins held.There is nospecialincentive forefforts orspecial roles.

A holder of1 Token willreceive areturn of25%whether ornot he doesany specialeffort.Similarly, aholder of 2Tokens willalso receivereturn of25% oneach of theTokens

2.5 points tobe added ifthe answer isyes

---

(b) Token holdersreceivevariablereturns.

The Tokenholders canreceivedifferentreturns basedon their role inmaking thesystem asuccess and therole they playin itsfunctioning.

Forexample, aholder of aparticularToken canreceiveadditionalbonusTokens if hespends it onspecialpurchases orif he usesservices thathe isentitledthrough thecoin.

2 points tobe deductedif the answeris yes

-2(Incentiveofcommissionfor networkparticipants.Networkparticipation is possibleonly ifToken isconvertedinto Coin)


Element 3: Expectation of Profit

Sl. Characteristic Explanation Examples Points to be Points for

12

No. of thesituation

added ordeducted

Tokens tobe

distributed4. The functions or rights

provided to the tokenholder

(a) Ownership orany othersimilar form ofinterest in alegal entityincluding equityinterest andgeneralpartnership.

(b) Claim to shareof profits orlosses and alsothe assets andliabilities.

(c) The holders ofthe Tokens/Coins have astatus similar tocreditor orlender

(d) A claim as anequity interestholder orcreditor duringbankruptcyproceedings.

(e) Right to claimrepayment ofthe price paidfor the Coin orinterest

All the Tokenswhich sharethesecharacteristicsand providerights similarto traditionalequity and debtinstrumentswill almostcertainly beconsidered as asecurityirrespective ofwhether theyfulfil Element1 or 2.

Examplesof theseTokensincluderights toshares ofCompaniesin exchangeof theTokens,right to apayment ofinterest toevery Tokenholder,claim todividendsby Tokenholderbased onprofits oftheCompany.

10 points tobe added ifthe answerto any of theparametersfrom (a) to(e) is ‘Yes’.

----

(f) No functions ofthe Token otherthan its mereexistence.

A Token whichdoes not haveanyfunctionality ormerely a rightof voting may

Forexample, anew Tokencalled‘ABC’ iscreated to

10 points tobe added ifthe answeris ‘Yes.’

---

13

be consideredto have beenbought with anexpectation ofprofit as noother benefitcould bepotentiallyderived from it.

fund a cloudstoragesystem.Now theToken ABCis notrequired forusing ABCor it doesnot provideany otherspecialbenefits.Such aToken maybeconsideredto havebeenpurchasedwith anexpectationof profitonly.

(g) Token providesa specificfunctionality orright which isavailable only tothe Tokenholders.

In case, aToken providesan exclusivebenefit such asa use of aservice whichis availableonly to theToken holders,then it is lesslikely to havebeen boughtonly with anexpectation ofprofit.

Forexample, anew Tokencalled‘ABC’ iscreated tofund a cloudstoragesystem.Now theToken ABCis requiredfor usingABC and nousage of theservices ispossiblewithout theToken. Sucha Tokenmay beconsideredto have notbeenpurchasedwith only an


0 (TheToken canbe used topay brokerCommission in IQOption.)

14

expectationof profit.

Sl.No.


situation


Points forTokens to

bedistributed

5. Reliance on manualactions and humaninputs for increase inbenefits to be derivedfrom the Coin.

(a) The Token isdependentupon otherhuman actionsand inputs foritsfunctionality.The value ofthe Token isnot limited toautomaticcomputerisedfunctions suchas mining butalso externalhuman basedfactors.

The Tokendepends onhuman actionswhich are notdirectly linkedto the Tokenand theseactions wouldnot happenautomaticallywithout humanintervention.

A Token‘AAA’ isreleased,profits onwhich islinked to therental valueof propertywhich willbeconstructedusing thefunds raised.

8 points tobe added ifthe answeris ‘Yes’.

---

(b) The Tokenfunctionsautomaticallyand does notdepend uponhumaninduced actionfor increase ordecrease invalue.

A Token whichhasfunctionality initself such asusage foraccessingservices on awebsite andwhich is notdependent onhumansprovidingaccess to thewebsite.

Forexample, anew Tokencalled‘ABC’ iscreated tofund a cloudstoragesystem.Now theToken ABCis requiredfor usingABC and nousage of theservices ispossible


0 (Based ontheassumptionthat theautomaticsystem ofconversionof Tokens tocoins is inplace).

15

without theToken. Sucha coin maybeconsideredto have notbeenpurchasedwith only anexpectationof profit.

Sl.No.



Points forTokens to

bedistribute

d6. The time when the sale

is undertaken. The laterto full functioning ofthe network, the lesslikely it is to be asecurity

(a) Pre deploymentThe developershave not yetbrought thenetwork intooperation andit is still inplanning orpreparation

The idea isavailable butit is still inwhite paperstage and thecrowd saletakes place

2 points tobe added ifthe answeris Yes

---

(b) Test networkfunctioning

The networkhas beendeveloped andis under trial. Ithas howevernot yet beenimplementedfully.

The idea hasbeenimplemented,but thesystem is notyet fullyfunctionaland tests maybe underway.


1 (Thenetworkwill bepartiallyfunctional).

(c) Network isfunctioning

The network isfunctional andthe idea hasbeenimplemented

The crowdsale has beenundertakenafter all theprocesses are


---

16

in practice.The system hasbeen test and isfullyoperational.

in place.

Sl.No.



Points forTokens to

bedistribute

d7. Real and significant

control by Voting bythe Token holders

(a) Token holdersdetermine theusage of themoneygeneratedfrom the saleof the Token.They alsocontrol therelease of thefunds to thedevelopersbehind theToken.

Collectiveassent of theToken holdersis required fortaking anydecisionincludingaccessing thefunds. Thisalso meansthat the Tokenholders arelargelyresponsiblethemselves forthe value ofthe Token anditsfunctioning.

For example, anew Tokencalled ‘ABC’ iscreated to funda cloud storagesystem. TheToken holdersapprove thedecision torelease $10,000to the team forupgrading theinfrastructurerelated to thecloud storagesystem. Fundsnot accessiblewithout thisdecision.

2 points tobe deductedif the answeris Yes.

---

(b) Token holderscan only voteon verysignificantdecisionsrelated to thechange of the‘Protocol’ onwhich theToken isbased.

Collectiveassent of theToken holdersis required fortaking majordecisions. Itshows thatToken holdersare morereliant on theirown decisions.

Token holdersmay control thechanges to theprotocol andtheir collectiveassent isrequired.

1 point to bededucted ifthe answer isYes

---

Sl.No.



Points forTokens to

be

17

distributed8. Marketing of the

Token sale

(a) Token ismarketed as an‘Initial CoinOffering’ or asimilar name

A few buyerswill in mostsituations buythe Token onlyfor profit andspeculation. Incase terms like‘Initial CoinOffering’ orprofits orbonus areused, then itshows agreaterpossibility forspeculativevalue of theToken ratherthan utility.

A Token ‘ABC’is released intothe market withmarketing suchas ‘Initial CoinOffering’ and‘high bonus.’

5 points tobe added ifthe answer isYes

---

(b) Token ismarketed as a‘token sale.’

The Token isoffered as atoken whichprovidesaccess to aparticularservice anduse it.

A Token ‘ABC’is released intothe marketwhich allowsyou to access asocial networkwhich can onlybe accessedusing theToken.

0 points tobe added ifthe answer isYes

---

(c) No economicbenefit of anytime ispossible fromthe Coin or itsServices.

Very raresituationwhere a Coingives nobenefits andno value.

Similar to adonation. Nobenefits.Donorsacknowledged.

10 points tobe deductedif the answeris Yes

---

Total for Element 3: 1 point if it is considered as a Token Sale.



Total for Element 3: 1 point if it considered as a Token Sale.

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Final assessment: 5 points for Element 1, 4 points for element 2 and 1 point for Element 3

means that the Token is ‘Unlikely to be a security.’

Notes for calculation:

a) 0 or less points- Very unlikely to be a security1-3 Points- Unlikely4-7 Points- Both likely and unlikely based on individual situations8-9 Points- May be a security10 or more- Highly likely to be a security

b) Elements from all the three groups have to be satisfied for a Coin to be considered as a security. Higher

points mean it is more likely that the element is satisfied.c) The first two elements are likely to be satisfied in most cases. However, the last element has to be

closely evaluated using the multiple parameters and may be decisive.d) This test has not been recommended by any Court, Attorney or Regulatory body. The results may not

accurately reflect every regulatory situation and are only for legal opinion assessment and analysis. c) The Risk Capital Test in certain states

The Supreme Court of California in the case of Silver Hills Country Club v. Sobieski, 55

Cal.2d 811, designed a test called the ‘Risk Capital Test’ which was later accepted by a

number of states across USA. In the give case, a club in California sold memberships for the

purpose of construction of the club. According to the offer, the people who purchased

memberships would not secure any direct profits but would secure a right to use the facilities.

The court looked into the sale of memberships and determined that:

‘We have here nothing like the ordinary sale of a right to use existing facilities. Petitioners

are soliciting the risk capital with which to develop a business for profit. The purchaser's risk

is not lessened merely because the interest he purchases is labelled a membership. Only

because he risks his capital along with other purchasers can there be any chance that the

benefits of club membership will materialize.’

So although, the memberships might not have come under the coverage of definition

securities under the 1933 and 1934, they were covered by the new interpretation of the court

19

based on local state laws and the duty of the courts to protect public from schemes which

attract risk capital.

The court through its decision formulated a four part test which is an evaluation of the

following parameters:

The raising of funds for business ventures The availability of the offer for general public If the investors have any power to determine the success of the venture If the money invested is at risk because of inadequate security.

The risk capital varies from the Howey test mainly on the parameter that it does not require

the element of profit and the benefit from the investment does not need to be a material

benefit.

From a preliminary evaluation, it can be seen that the Token release could fulfil important

parameters such as

The availability of/ sale of tokens to the general public through the crypto exchanges

where the Token will be traded. No security for the value of the Tokens with any real assets.

Since, the Token release does not directly involve any collection of funds from the public

except for allocation of Tokens to the members and shareholders of IQ Option team who have

received the Tokens as a favour, it may be considered that there is no money at risk for a large

section of participants. But this situation would change when the Tokens which were

allocated for ‘free’ initially would be traded in the crypto currency exchanges.6 The persons

who have acquired the Tokens on the crypto currency exchanges would have their money at

risk because there is inadequate security for the funds invested and the value of their Tokens

depends upon its utility as a Coin in the OT Network upon conversion.


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In cases where the Tokens have been traded for money or indirectly acquired for a

consideration such as by spending additional amounts as Commission in IQ Option to acquire

more Tokens7, it would put the money at risk.

However, owing to the absence of any direct connection of the first allocation of the Tokens

with risk of a loss of money, it is unlikely to be a security based on the risk capital test.

AGREED AND ACCEPTED

Lionel Iruk, Esq. Managing Partner & General Counsel

EMPIRE GLOBAL PARTNERS, LLCTHE IRUKE LAW FIRM, PLLC, Managing CounselMAIN OFFICE ADDRESS:2211 Norfolk St Ste 600Houston, TX 77098-4055Direct USA Ph: 1-(281)-769-5377 [email protected] Global Professional Services FirmWorldwide Professionals, Local Experience. http://www.empireglobal.partners

Disclaimer: Please note that the information here is based on our assessment of the existing legislations and the information provided to us by the client andshould not be used for any business decisions. We will not be responsible for any losses arising out of the use of this information for any investments or anyother business decisions. Our maximum liability under all circumstances and in all jurisdictions is limited to the fee paid for this information only and noadditional liability is accepted for any situation arising directly or indirectly from the use of this information.


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