Conducting a Tokenized Offering Under Reg A
Overview
While there are multiple frameworks available to launch and distribute tokens—including those designed to avoid classification as securities—many of our clients elect to offer tokens as securities for strategic reasons. This can include unlocking broader investor participation, enabling secondary market liquidity, or building long-term institutional trust. Regulation A and Regulation Crowdfunding (Reg CF) are the two primary exemptions that allow for the public issuance of security tokens under U.S. law.
In this resource, we focus specifically on the mechanics, benefits, and obligations of launching a security token offering under Regulation A. We explain how the process works, when it might make sense as a strategy, and what legal, accounting, and compliance requirements are involved. Anderson P.C. is well positioned to support clients through each phase of this process, and it is important to understand that executing a compliant Reg A tokenized offering requires sophisticated legal, financial, and operational support.
Regulation A, a modern securities exemption codified under the Securities Act of 1933, serves as a vital legal framework that allows companies—particularly those engaged in blockchain innovation and digital asset issuance—to raise capital from the general public while issuing freely tradable securities, including tokenized instruments. For issuers of blockchain-based tokens, Regulation A (and more specifically, Tier 2) offers a practical and cost-effective alternative to a full S-1 IPO registration. It bridges the gap between private offerings (such as those made under Regulation D) and full-scale public offerings, allowing broader access to capital, retail investor participation, and the potential for secondary liquidity on compliant marketplaces.
Why Use Regulation A for Token Offerings
Statutory legitimacy: Provides a clear, SEC-qualified pathway for publicly offering blockchain-based tokens.
Tradable tokens: Enables post-offering token liquidity, typically unavailable under private exemptions such as Reg D or Reg S.
Substantial fundraising capacity: Up to $75 million annually (under Tier 2), ideal for growth-stage companies.
State law preemption: Avoids the burdens of registering with or qualifying through individual state securities regulators (Blue Sky laws).
Investor flexibility: Allows participation by both accredited and non-accredited investors, subject to investment limits.
Reputation and credibility: SEC qualification signals regulatory compliance and increases institutional comfort.
Pre-launch testing: Permits "testing-the-waters" communications before filing, useful for gauging market interest and refining offering terms.
Comparing Regulation A to Other Offering Options
Regulation A is divided into two tiers—Tier 1 and Tier 2—each with distinct thresholds, disclosure requirements, and compliance burdens. Tier 1 may be suitable for smaller capital raises and regionally focused offerings, while Tier 2 is more commonly utilized for larger offerings involving nationwide investor participation and trading.
The following table provides a comparative overview of both tiers of Regulation A, and a traditional S-1 public offering:
Who Should Consider Regulation A
Reg A may be suited for:
Blockchain-based platforms seeking to distribute utility, governance, or revenue-share tokens broadly.
Real estate sponsors issuing tokenized fractional interests in commercial property (CRE).
Fintech ventures incorporating token-based investor participation, staking, or access models.
Companies with long-term plans to list tokens on secondary trading venues (e.g., ATSs).
Projects that require large-scale token distribution for network effects, user acquisition, or ecosystem incentives.
Key Steps in the Regulation A Offering Process
Preparation of the Offering Statement (Form 1-A)
Drafting detailed disclosures about the issuer's business model, leadership, financial condition, risk factors, token mechanics, use of proceeds, and technical platform.
Attaching exhibits, including smart contracts, prior financing documents (e.g., SAFTs), material agreements, whitepapers, marketing assets, and legal opinions.
SEC Review and Comment Period
Expect multiple rounds of comments from SEC staff.
Key topics include classification of the token (equity/debt/other), pricing methodology, accounting treatment, risk disclosures, and clarity on token functionality.
Qualification and Launch
Once the SEC issues a notice of qualification, the issuer can commence offers and sales of tokens as described in the final Form 1-A.
Ongoing Compliance and Reporting
Form 1-K (Annual Report): Due 120 days post fiscal year-end; must include audited financials.
Form 1-SA (Semiannual Report): Due 90 days post mid-year; includes unaudited interim financials.
Form 1-U (Current Reports): Filed within 4 business days of material events (e.g., executive departures, major contracts).
Preparation Requirements for Issuers
Legal Counsel
Must have demonstrated expertise in securities law, blockchain regulation, and capital markets.
Should proactively identify broker-dealer, money transmitter, and investment company implications.
*Anderson P.C. offers comprehensive legal support throughout the Reg A process: offering structuring, risk management, disclosure preparation, SEC engagement, and ongoing compliance.
Auditors and Accountants
Issuer must prepare 2 years of GAAP-compliant audited financials.
Accounting treatment of tokens must reflect any revenue, liability, or deferred income associated with token utility or SAFTs.
EDGAR Agent and Printers
Necessary for formatting and filing with the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
Product and Platform Finalization
Smart contracts must be developed and externally audited.
Token terms (rights, use cases, supply schedule) must be finalized.
If any functions are still in development, these must be clearly disclosed.
Tokenomics and Distribution Design
Must describe how tokens are allocated to founders, investors, developers, users.
Include vesting schedules, lock-up terms, resale restrictions, and use of reserve pools.
Secondary Market Strategy
Must plan for post-offering liquidity through a registered Alternative Trading System (ATS).
Issuer cannot operate its own marketplace without appropriate regulatory status (exchange, broker-dealer, etc.).
Some clients may choose to enter into strategic partnerships to cover regulatory or registration gaps.
Marketing and Communications
Pre-qualification marketing must comply with "testing-the-waters" (TTW) rules under Rule 255.
All TTW materials must include specific disclaimers and be submitted with the Form 1-A.
Remediation of Past Conduct
Issuers must identify and disclose any prior unregistered offerings, SAFT sales, or material missteps.
Clean-up plans may include legal opinions, amended disclosures, or formal outreach to regulators.
Compensation Structure
Issuers must avoid transaction-based compensation unless properly registered as broker-dealers.
Platform fees, software licensing, and subscription revenue are permissible alternatives.
Regulation M Restrictions
Issuers cannot receive tokens during their own distribution period (e.g., via treasury operations or platform services).
Must observe Regulation M’s “restricted period” to avoid price manipulation concerns.
Conclusion
A Regulation A offering is a powerful legal mechanism for scaling tokenized platforms in full compliance with U.S. securities laws. It offers unmatched flexibility for token-based capital formation, but also introduces extensive documentation, reporting, and regulatory engagement.
At Anderson P.C., we combine deep securities expertise with blockchain fluency to guide clients through the complete lifecycle of a Regulation A token offering—from strategic planning and Form 1-A preparation to SEC negotiation and post-launch compliance.
* * *
Attorney Advertising—Anderson P.C. is a U.S. law firm and provides this information as a service to clients, prospective clients, and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.
Anderson P.C. is a boutique law firm dedicated to defending clients in government investigations and securities enforcement actions initiated by the SEC, FINRA, DOJ, and other regulatory bodies. We provide focused, strategic counsel and regulatory guidance across the full spectrum of federal laws and regulations affecting broker-dealers, investment advisers, banks, asset managers, private funds, public companies, senior executives, and digital assets. Our deep expertise allows us to navigate complex legal challenges and deliver results-driven solutions tailored to our clients' unique needs.
If you have any questions or need legal assistance related to government investigations, securities enforcement actions, or regulatory compliance, please don't hesitate to contact us. Our team at Anderson P.C. is here to provide the expert guidance and support you need to navigate these complex challenges.
