Three reasons we believe Alphachain is exempt from SEC regulation

Subject: Release No. 81207
From: FT Alphaville

Jay Clayton
Chairman
Securities and Exchange Commission
100 F Street, N.E. Washington, D.C., 20549-1090

Dear Mr. Clayton,

We were very concerned when we saw your announcement that some initial coin offerings might be regulated by the Securities and Exchange Commission. How are we supposed to both disrupt and propagate high-quality journalistic products if we have to register with the SEC too?

It may be prudent to regulate offerings of items like DAO Tokens — since those guys got hacked — but we worry it is not yet easy enough to go public to mitigate the deleterious effect of this announcement on non-security retirement-capital-raising activities.

We’re certain we can demonstrate that we should not be regulated, because paperwork is hard, and we don’t want to do it. We also don’t want to tell anyone what we’re going to do with their money.

As you cited in your Tuesday report, SEC v. Edwards (*using the Howey test) found that a transaction is a regulated “investment contract” if it involves an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”

This standard does not apply to Alphachain, for the reasons that follow:

1) “Investment of money”

You can find the following footnote in our technical whitepaper: “The tokens are not available for purchase by the residents of any country.”

We have not to our knowledge sought or received money or cryptocurrency from country-less drifters, nor have we sought it from floating communes.

2) “Reasonable expectation of profits”

No reasonable investor should expect to profit from stunt journalism. Our tokens offer a “perpetual subscription to the Alphachain publishing network”. This includes no promise of profit or any sort of remuneration whatsoever.

Further, we state clearly in the introduction to our offering we want to promote our “vision of a future where Alphaville journalists retire young(ish) and live out their days sipping Mojitos on a tax-efficient beach.”

3) “Derived from the entrepreneurial or managerial efforts of others”

While some could argue that it is entrepreneurial to launch any token offering, we make no claim of the sort.

What’s more, as you describe in your report:

Investors in The DAO reasonably expected Slock.it and its co-founders, and The DAO’s Curators, to provide significant managerial efforts after The DAO’s launch. The expertise of The DAO’s creators and Curators was critical in monitoring the operation of The DAO, safeguarding investor funds, and determining whether proposed contracts should be put for a vote. Investors had little choice but to rely on their expertise.

By contract and in reality, DAO Token holders relied on the significant managerial efforts provided by Slock.it and its co-founders, and The DAO’s Curators, as described above.

No such promise of managerial involvement or value-add has been made to Alphachain members. Rather:

Alphachain empowers smart-contract bubble journalism, decentralising hack finance for a trustless news protocol with a deep commitment to verified insecurity. Microtransactions enable macro-story publication, which readers access through a token-mediated crypto-portal.

We have never promised any security whatsoever, and therefore should not be considered to be offering securities.

Sincerely,

FT Alphaville