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Virtual Token Analysis Lawyers in New York City

Token generation events (also called initial coin offerings, or ICOs) for virtual tokens are an increasingly popular tool for capitalization among Internet businesses. Although virtual tokens are an emerging technology, they are still subject to the same laws and regulations as more traditional forms of capitalization.

Among the most significant of those laws are the state and federal securities laws, which require that investments that qualify as securities be registered with the government. Federal regulators at the Securities and Exchange Commission (SEC) have made clear that some virtual tokens fit the definition of securities under federal law.

Dilendorf & Khurdayan are New York City virtual-token lawyers representing startups, blockchain developers, FinTech companies, and others interested in raising money through ICOs understand and comply with their legal obligations.

We provide comprehensive virtual token analysis to our clients so that they understand the legal classification of their tokens and what laws apply to them in the U.S.


Represented a blockchain based gaming platform in connection with structuring Regulation D and S offerings, including full review of the project, drafting a private placement memorandum and purchase agreement to launch the sale, guidance through the process of verifying U.S. accredited investors and completing KYC/AML checks, and filing form D with the SEC.

Represented B2B / B2C blockchain freelance platform in the process of raising capital through Regulation D and S offerings to U.S. and non-U.S. investors, including review and analysis of the white paper and the project, preparation of the private placement memorandum (PPM), subscription agreements, guidance regarding the process of investor accreditation as well as AML/KYC checks, and filing Form D with the SEC.

Represented a decentralized crypto exchange platform and advised the company regarding the process of raising capital in the U.S. through SEC Regulation A+ and D offerings, including money transmitting licenses in all 50 states, preparation of all necessary offering documents to launch token sale in the U.S.

Advised real estate development blockchain startup from UAE regarding a pre-ICO sale in the U.S. and compliance with SEC rules and regulations

Conducting a Rigorous Review of Virtual Tokens

What laws govern a token and what they require can be affected by a wide range of facts and circumstances. Our firm takes a holistic approach to token analysis, conducting a rigorous review of all aspects of a virtual token and ICO. As part of our review, we:

  • Carefully analyze the attributes of our clients’ virtual tokens to determine what state and federal laws and regulations they may be subject to.
  • Review our clients’ white papers and other marketing materials to ensure compliance with state and federal securities and consumer-protection laws.
  • Advise clients on optimal virtual-token and ICO strategy in view of existing law and emerging legal developments.

Providing a Comprehensive Overview of the Regulatory Landscape

As part of our standard token analysis, we consider whether the attributes of a token, its developer, or the way in which it is marketed and sold to the public bring it within the federal definition of a security.

Normally, that occurs when the token meets the Howey test for an investment contract, which uses the following four elements:

  • An investment of money

  • In a common enterprise

  • In which the investor is led to expect profits

  • Predominantly from the efforts of others.

While SEC v. W.J. Howey Co. (Howey) is a landmark case used to determine whether a token is a security under the U.S. laws, courts have also developed two additional tests that clients should be familiar with: the family resemblance test, which distinguishes between notes that are securities and notes that are not securities; and the risk capital test, which several states use in interpreting their own securities laws.

Beyond Howey

Another test that those planning an ICO should be aware of is the family resemblance test, used to determine whether a note is a security. That test establishes a three-step analysis to distinguish notes that are securities from notes that are not:

  • Notes are presumed to be securities
  • That presumption can be rebutted by showing that a note bears a strong resemblance to one of several enumerated categories of notes that courts have determined are not securities
  • If a note does not bear a sufficient resemblance to any of the enumerated categories, then courts must determine if a new category that covers the note should be added to the list

In addition, more  than a dozen state use a third type of test to determine whether an investment is a security: the risk capital test. The risk capital test was developed as an alternative to the Howey test, which state courts had borrowed from federal law.

In general, the risk capital test is broader than Howey. In other words, an investment may be considered a security under state law, and so subject to state securities regulations, even if it is not a security under federal law.

We Perform In-Depth Analysis of Your Token and Develop the Token Sale Risk Matrix

When analyzing a new token, we review all applicable federal securities regulations in order to assess the probability of SEC treating the token as a security. We guide the clients and provide advice as to how to move forward with an ICO in compliance with SEC regulations.

Simultaneously, our analysis is sensitive to the varying definitions and regulations for securities at the state level. By carefully reviewing all applicable laws at every level of government, we can provide our clients with a detailed understanding of what laws apply to their tokens and how best to address them.

Developing Innovative Strategies for Compliance

The application of existing laws to the context of virtual tokens remains unclear in important respects. Our firm designs innovative, robust strategies that help our clients succeed even in the face of legal uncertainties.

We do this by:

  • Maintaining a thorough, up-to-date understanding of the state and federal laws implicated by virtual tokens and ICOs
  • Taking advantage of exemptions from registration under the federal laws, including
  • Taking advantage of exemptions from registration and future restriction on resale using sophisticated investment structures, including Simple Agreements for Future Tokens (SAFTs)
  • Drafting or reviewing terms and conditions to ensure that they are clear and comprehensive, reducing the risk of disputes and the costs of resolving any disputes that do arise

For an assistance with completing a token analysis

please contact Dilendorf & Khurdayan by sending an email or calling us at 212.457.9797.