Jet-Leasing Firm Gets First SEC Blessing for Unregulated ICO

(Bloomberg) -- An obscure jet-leasing business just got an unprecedented prize in the crypto world -- the U.S.’s blessing to sell a digital token that isn’t regulated by the Securities and Exchange Commission.

TurnKey Jet Inc. won’t face punishment for issuing coins that aren’t registered with the regulator as long as the company adheres to a number of stipulations, the SEC said Wednesday. Among the conditions: Those who buy the tokens won’t be granted an ownership stake in TurnKey and the company faces tough restrictions on using proceeds from coin sales to invest in its business.

The SEC’s decision resolves some uncertainty about federal oversight that has long confounded the fledgling market for initial coin offerings and been a major constraint on the industry’s growth. Still, it’s unclear how many firms will take advantage of the concession granted to TurnKey because of the limits placed on the tokens, such as a bar on trading them in the open market.

TurnKey received what’s known as an SEC no-action letter, the equivalent of a regulatory get out-of-jail-free-card. The letter means the regulator won’t sue the company, based in West Palm Beach, Florida, as long as it doesn’t violate a number of terms.

Scrutiny by the SEC, which has jurisdiction over U.S. investment contracts, has been a major theme as cryptocurrencies have tumbled from record highs reached in 2017. SEC Chairman Jay Clayton has repeatedly warned that most ICOs are securities that should be registered with the agency, which would subject the tokens to stiff federal rules. To back up Clayton’s tough words, the SEC has brought enforcement actions against several unregistered offerings.

To convince regulators, TurnKey, which currently operates two corporate jets, promised the SEC that it wouldn’t use funds raised from the tokens to develop its network and that the coins would be immediately usable for purchasing air charter services. Furthermore, the tokens must be transferred on TurnKey’s trading platform and can only be sold by the firm for $1. There SEC placed restrictions on marketing and transferring the tokens.

TurnKey is looking to sell the tokens as soon as possible, according to James Prescott Curry, a lawyer representing the company. He said the SEC’s no-action relief was a "long time coming" after he worked for months with the regulator on TurnKey’s request.

Separately, the SEC released guidance Wednesday to help would-be issuers decide whether initial coin offerings should be registered with the regulator. Generally, a security is created when investors fund a company with the intention of profiting from the actions of the business’ management.

“We’ve tried to be more expansive on the things that would be helpful if you’re trying to structure an asset that is not a security,” William Hinman, the director of the SEC’s corporation finance unit, said in an interview. “It’s really intended to give everyone more guidance in terms of how we look at the issue.”

To contact the reporters on this story: Ben Bain in Washington at bbain2@bloomberg.net;Andrew Ramonas in Washington at aramonas2@bloomberg.net

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott

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