In-depth look into Filecoin's pre-sale from their form D submitted to the SEC's EDGAR database

Filecoin has been in the news a lot lately ever since it raised a huge war chest through its token sale, while  the developers are either being loved or hated for following the private placement guidelines the SEC demands for the 'sale and offer' of securities to US investors.

In this article, I will briefly discuss the content to the Form D submitted by Protocol labs for the pre-sale of Filecoin tokens to the SEC's EDGAR database.

THE FORM D: 

https://www.sec.gov/Archives/edgar/data/1675225/000167522517000001/xslFormDX01/primary_doc.xml

Protocol Labs, the creators of Filecoin, offered a pre-sale on July 21, 2017. This pre-sale raised about $51.65M from 154 accredited investors, and the investors were offered "to receive Filecoin tokens in the future via a Simple Agreement for Future Tokens (SAFT)."

Protocol Labs is a corporation that is 3 years old and is working on the IPFS and Filecoin (among other projects). Their Executive Director Juan Batiz-Benet signed the Form D filed with the SEC's EDGAR database.

Protocol Labs teamed up with Angellist to create Coinlist, a platform that helps create legally compliant ICOs. The SEC regulates the sale and offer of securities, and they can filed charges across country borders if the company does not follow public registration offering guidelines or meet private placement exemptions when dealing with US investors. 

A company can issue private securities, but must meet guidelines found in regulation D of the Securities Act of 1933. There are three main rules involved, but the last rule is more important, rule 506. Rule 506 (c) is a special exemption that gives a company a lot more leeway in how they conduct their offering, like being able to solicit and advertise their offering and raise unlimited amount of capital; however, only 35 or less of the investors can be non-accredited. Everyone else must be accredited, and all investors must be 'sophisticated.'   

Protocol Labs ticked the box for a 506 (c) exemption, and this makes sense because they had extensive advertising and raised $51.5M to only a select group of accredited investors. Unlike a normal company's private offering, they did not need to hire a broker to transact the sale of the securities because token sales and blockchain technology overcome old barriers placed on other companies. 

A Form D must be filed with the SEC no later than 15 days prior to the sale of the securities. Protocol labs submitted their form on August 7, 2017. This is 17 days after the sale, so they were 2 days late. What the penalties are for this I do not know, but it makes one question how competent the legal team must of been to let that one slip by. 

What did you think about the Filecoin ICO or their pre-sale? Leave a comment below!