Tokenized stocks have sparked debate over their legality, particularly in the context of private companies like OpenAI. The issue gained attention when Robinhood offered unapproved tokenized OpenAI shares, prompting regulators in Lithuania to launch a formal inquiry.
To understand the legal complexities behind tokenized stocks, experts from Digital & Analogue Partners, Hong Kong Web3 Association, and Global Ledger weighed in on the matter. According to Yuriy Brisov, tokenization emerged as a technical solution rather than a legal one, primarily affecting private shares. The economic rights are transferred to clients, but voting rights remain limited.
Joshua Chu highlighted that synthetic wrappers created without understanding the rights attached to original shares can pose risks. If these wrappers breach shareholder agreements or trademarks, they could lead to legal consequences, not just securities law, but trademark infringement and broader compliance violations.
Yulia Murat pointed out that tokenized shares issued by offshore entities present significant AML challenges due to differences in regulatory standards and difficulties enforcing compliance across borders. The opaque ownership structures used in such schemes conflict with US, UK, and EU expectations of UBO identification.
Brisov noted that companies can offer tokenized shares through private sales or public listings under US law. However, using offshore jurisdictions does not exempt companies from disclosure requirements or licensing regulations.
The experts emphasized that regulators worldwide follow common principles under international bodies, and tokenization does not excuse companies from securities laws. Even if issued in a jurisdiction with no explicit ban, promoting investment returns puts the issuer in securities territory.
Regulatory authorities are responding to these issues by increasing pressure on intermediaries to adopt risk-based compliance measures. The use of offshore platforms without adhering to high-standard AML controls presents a significant threat to financial integrity unless meaningful KYC and reporting practices are adopted.
In conclusion, tokenized stocks raise complex legal concerns across Europe and beyond, with regulators and experts urging companies to adhere to securities laws and maintain transparency in their operations.
Source: https://cointelegraph.com/magazine/robinhoods-tokenized-shares-poked-the-legal-hornets-nest