Financial Services Spotlight

"Low Risk, High Potential Rates of Return are Achievable"

Posted by Joel S. Telpner on Aug 16, 2018 12:23:04 PM

Really? According to the website created by Tomahawk Exploration LLC (Tomahawk), in connection with its Initial Coin Offering (ICO) for its Tomahawk tokens (TOM), the ICO represented “a substantial investment opportunity . . . capable of producing significant risk-adjusted rates of return.”

Once again, the U.S. Securities and Exchange Commission (SEC) had no choice but to remind the world that ICO issuers cannot act with impunity and that fraud is, well, fraud. On August 14, 2018, the SEC issued a Cease and Desist Order to Tomahawk (Order) in connection with its ICO that initially took place between July and September of 2017. Tomahawk sought to raise $5 million through the sale of TOM tokens to fund the cost of drilling oil wells. According to Tomahawk’s whitepaper, TOM tokens were “directly backed by oil production” and gave their holders an option to convert into Tomahawk equity at a later date. The SEC had no trouble concluding the tokens constituted “investment contracts” and were thus securities, but the Order gives us more than that.

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Topics: ICO, finance, Securities and Exchange Commission

About the Spotlight


The Financial Services Spotlight examines the regulatory and technology developments impacting banks, asset managers and other financial services providers—where challenges meet opportunities.

The material on this site is for general information only and is not legal advice. No liability is accepted for any loss or damage which may result from reliance on it. Always consult a qualified lawyer about a specific legal problem.

 

Meet the Authors


Roy C. Andersen, of counsel in Sullivan & Worcester's New York office, is a member of the Corporate Department. Mr. Andersen focuses on bank regulatory and compliance matters, including international banks and their branches and agencies in New York.

Joel Telpner, partner in the firm's New York office, is a seasoned advisor, strategist and problem solver. Mr. Telpner brings more than 30 years of legal experience in a career that includes time as an AmLaw 100 partner, the former U.S. general counsel of a global financial institution, and a venture capitalist. He is recognized for his ability to deftly manage complex financial transactions, especially those involving sophisticated structured finance and derivatives matters and has an extensive and unique combination of transactional and regulatory experience.

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