Regulatory Compliance
All Element Zero stablecoins are security tokens that act as a note with an inflation return equal to a minimum of 3% a year. The stablecoins must comply with all SEC and tax regulations. This includes being subject to audits and also verifying that Element Zero stablecoins adhere to country regulations regarding accredited investors.
According to our SEC advisors, all stablecoins in the industry that manipulate their coin value by controlling supply and demand are considered a security based on the SEC regulations. This is a result of them being sold as an investment with the expectation of providing a return to the purchaser (keeping the coin stable at $1.00 is still considered a profit due to loss prevention).
Even if a coin or token does not generate any profits or changes in value, it can still be considered a security. For example, if you can move your volatile currency into a token and the value of the token does not change, but the value of your currency falls, then relative to your situation there has been an appreciation. The token is, therefore, an investment. As such, it is a security token. The stability of the coin or token creates the appreciation; therefore, a stablecoin company that sold a security without complying with the regulation may be in violation of the law, exposing their company to the potential risk of a class action lawsuit.
Section 201(a) of the JOBS Act requires the SEC to eliminate the prohibition on using general solicitation under Rule 506. This rule indicates that where all purchasers of the securities must be accredited investors and the issuer will take reasonable steps to verify purchasers are accredited investors.
To implement Section 201(a), the SEC adopted paragraph (c) of Rule 506. Under Rule 506(c), issuers can offer securities through means of general solicitation, provided that:
All purchasers in the offering are accredited investors;the issuer takes reasonable steps to verify their accredited investor status; And, certain other conditions in Regulation D are satisfied.
In regulated countries such as the US, there are two options for non-accredited investors to buy Element Zero stablecoins:
- Purchase them from an accredited investor, via a security exchange in the secondary market. In this situation, accredited investors are subject to holding their stablecoins for 12 months before they can sell them to non-accredited investors.
- Once Element Zero completes the registration of its public offering of stablecoins (Element Zero intends to complete its registration prior to the start of the STO), and those securities are registered with the SEC and the 50 states, anyone will be able to buy and sell the registered stablecoins.
Note: Non-accredited investors from non-regulated countries can freely purchase our stablecoins without restriction. To check if your country has regulations consult with your local legal representative.
Regulation S is a safe harbor regulation that defines when an offering of securities is deemed to be executed in another country, therefore not subject to the registration requirement under Section 5 of the 1933 Act. The regulation includes two safe harbor provisions: 1) are issuers safe harbor, and 2) are sales safe harbor. In each case, the regulation demands that offers and sales of securities be made outside the United States and that no offering participant (which includes the issuer, the banks assisting with the offer and their respective affiliates) engage in "directed selling efforts."
In the case of issuers whose securities are of substantial US market interest, the regulation also requires no offers and sales be made to US persons physically located outside the United States.
SEC Form S-1 is the initial registration form for new securities required by the SEC for public companies. Any security meeting the criteria must have an S-1 filing before shares can be listed on a national exchange. Form S-1 also requires companies to provide information on the planned use of capital proceeds, detailing the current business model and competition, while also providing a brief prospectus of the planned security, itself, which includes price methodology and any dilution that will occur.
Each state has laws that apply to the issuance and trading of securities. State securities laws are called “blue sky laws.” Most states require those broker-dealers and their representatives who conduct business in their state to register with the state's securities administrator. Each state's securities administrator has the power to revoke a broker-dealer's registration or any representatives license if either one has violated the state's securities laws. Securities must also be registered in the state before they may be sold there.
Opening an account with Element Zero requires registered parties to follow legal regulations that include both secure KYC (Know Your Client) and AML (Anti Money Laundering). Both the KYC and AML processes will be completed by our partner.
