Issuing your ico tokens TO AMERICAN INVESTORS THE SMART AND LEGAL WAY

1. Issuing your ico tokens TO AMERICAN INVESTORS THE SMART AND LEGAL WAY Gambit = A daring act that is calculated to gain an advantage. “SA33” = U.S. Securities Act of 1933 “ “SEC” = U.S. Securities and Exchange Commission Gordon H. Einstein, Esq. www.adaptivesky.com geinstein@adaptivesky.com

2. “Friendly” (but real) disclaimer Nothing in this presentation constitutes legal advice. This is a general conceptual and theoretical high-level overview of initial coin offerings (ICOs), tokens, the U.S. securities laws, some of the registration exemptions which might be available, and related topics. Nothing herein is intended or related to any particular factual situation. Nothing herein forms an attorney-client relationship. You are advised to consult with your own lawyer, accountant and other professionals before making any decisions.

3. Ponder this scenario… • Cutting-edge Ukrainian startup GamBTC.io (pronounced “Gambit.io”)is developing a breakthrough technology platform which has something to do with crypto-economics, blockchain, Angela Merkle trees, decentralized apps, and “working” vacations in Odessa. full details to be revealed in the upcoming whitepaper. • In order to accomplish its ambitious goals, and be first to market before any competitors, GamBTC.io intends to raise at least $20 million of investment capital – fast. • Like any self-respecting startup in this space, GamBTC.io will conduct an ICO. • But, the international regulatory environment for ICOs is changing fast. China just banned ICOs and other countries seemed poised to take some sort of negative action. • GamBTC.io is now thinking the unthinkable – with China offline – is it time to allow U.S. residents to purchase ICO tokens? Or, will the SEC throw all of GamBTC.io’s founders in jail for violations of U.S. securities laws?

4. And, ON a more conceptual level… • The U.S. economy is still the world’s biggest and it has the largest and most liquid capital markets. U.S. investors have real money and want to invest in ICOs. • Startups conducting ICOs now have a pressing need to access U.S. investment capital, especially with China offline. NOT accessing U.S. investment capital, when it is available, could be a strategic mistake. The U.S. is where the money is. • But, U.S. securities laws are perceived as complex, restrictive and burdensome. The U.S. Securities and Exchange Commission (the “SEC”), the “independent” government agency charged with enforcing those laws, is often perceived as arbitrary, conservative, and in the pocket of legacy financial companies. • These perceptions are NOT irrational: U.S. securities laws’ default rules on the sale of newly-issued securities are burdensome and complex, and the dealing with the SEC can be a life-ruining nightmare (especially if you broke the law). • Broadly, there are FOURoptions for handing the U.S. investor “opportunity”.

5. GamBTC.IO’s 1st and 2nd Options regarding Issuing ICO tokens to U.S. purchasers OPTION #1 – Move Fast, Get Rich, And Stay In The Shadows – Maybe For Life. GamBTC.io decides to not worry about the U.S. securities laws. It will issue ICO tokens to U.S. purchasers. GamBTC.io will use the capital thus raised to achieve massive success. The founders can deal with the legal consequences of their actions (if there are any) later – either from their Ibiza mansions via lawyers, or from U.S. prisons via the fast and efficient U.S. criminal appeals process (not…). OPTION #2 – We Don’t Need The Money That Badly. Plus, We Are Scared. GamBTC.io fails entirely to live up to its bold name. Instead, it plays super-safe and completely forbids U.S. residents from participating in its ICO. All U.S. IP addresses are denied. No one from GamBTC.io goes to jail, but GamBTC.io’s ICO raises just $10 million from the non-China and Non-U.S. world. Not terrible, but short of its goal. And all of that U.S. investment capital is still sitting there, waiting for someone more brave (or reckless) to claim it.

6. GamBTC.IO’s 3rd and 4th Options regarding ISSUInG ICO tokens to U.S. purchasers OPTION #3 – SECCrime = If {Pray(Utility ≠ Security) * Random() >= ???} GamBTC.io’s believes that “utility tokens” are by definition not securities under U.S. law, and they are not alone in believing this. GamBTC.io carefully designs its token with an extra saucy serving of “utility”, and issues its ICO tokens to U.S. purchasers. Did they do it right? Will the SEC agree? Will the SEC agree in 5 years when a U.S. judge rules that “utility tokens” can still be securities under U.S. law? Scary… OPTION #4 – Knowledge + Plan + Control = $ucce$$ GamBTC.io does the (currently) unthinkable. It issues its ICO tokens to U.S. purchasers and treats them as proper and legal newly-issued securities under U.S. law. Because GamBTC.io did its homework, it was able to use a completely legal exemption to avoid 90%+ of the pain associated with U.S. securities sales. All in all, GamBTC.io was able to raise an additional $10 million from U.S. token purchasers, hitting its capital-raising goal of $20 million. Added Bonus: GamBTC.io no longer needed to compromise its token design, or allocate valuable developer time, in the uncertain pursuit of “utility” status.

7. The Securities Act of 1933 – overview • When it comes to a startup issuing ICO tokens, the main U.S. law to be aware of is the Securities Act of 1933 (“SA33”). SA33 was enacted by the U.S. Congress in response to the stock market crash of 1929. • The core rule of SA33, the default which should be assumed to apply to all security transactions unless an exemption is found, is that securities offered or sold in the U.S. using the means and instrumentalities of interstate commerce must be registered with the SEC. • PS – if you use the internet, then you are engaged in “interstate commerce”. • Doing a full registration with the SEC is very expensive, complex and time consuming. It involves filing many forms with the SEC, and preparing and submitting a full prospectus, which describes the investment offering in exhaustive detail. • full registration is only appropriate for businesses looking to be listed and traded on a national exchange such as the New York Stock Exchange (NYSE). No startup conducting an ICO wants full registration with the SEC.

8. The Securities Act of 1933 – important NOTES • NOTE #1 – SA33 only applies to the sale of “securities”, not to sales of inventory, land, etc… and so MAYBE not to certain tokens. So… what is a “security” anyway? More on that soon… • NOTE #2 - SA33 is not about protecting investors from their own bad judgment. It does not certify a security as a “good investment”. The main thrust of SA33 is providing the investing public with complete and accurate information with which to make its own decisions. • NOTE #3 – The idea that some investors are sophisticated enough to conduct their own due diligence regarding the purchase of securities without government protection is the basis of some exemptions to the registration requirements of SA33. Utilizing an appropriate exemption is much less burdensome than doing a full registration. • NOTE #4 – It is part of the SEC’s mandate to facilitate capital formation and investing in securities. These are essential to the success of the U.S. economy. So, the SEC is NOT all about getting between parties and causing problems. Its goal is the maintenance of transparent, functioning, and liquid security markets.

9. Escaping the SA33 Matrix – what is a “security”? • Recall that SA33 only applies to “securities”. If something is not a security, then no need to register its offer or sale with the SEC. Inquiry over – you win. • Broadly, a security is an “investment contract” – a term used, but not defined, in SA33. It is intended as a “catch all” category. Stocks and bonds (and many other standard investment instruments) are specifically referenced in SA33, so they can certainly be securities. • Things like inventory transactions, land sales, double lattes, actual currencies and virtual currencies used in online games are not investment contracts. • What about things offered for sale that have some characteristics of an investment contract, but don’t go by a name usually associated with a known type of security? For example, a “token”. What if the issuer and the SEC disagree? • The most famous case in U.S. securities law is SEC vs W. J. Howey Co. (1946). In Howey, the Supreme Court of the United States promulgated the “Howey Test” – the definitive way of determining if an object (instrument) qualifies as an “investment contract” (aka, security) under SA33.

10. “Utility Token” = token issuer trying to DODGE characterization as “security” under howey Howey test elements: • 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. Utility Token Elements: • Someone in Ukraine, Israel, China, Russia, Nigeria (etc.)… • Attempting to figure out what the Howey test really means… • Then attempting to apply what they think Howey means to token design… • Praying that they were right for the next several years. PLUS – how much “utility” is enough?

11. Some Friendly SEC guidance on applying howey to tokens • The SEC issued a report on July 25, 2017 regarding the DAO and its tokens. It is worth a close review. Recall that the DAO was intended as a form of investment company or fund in which token holders would share in the DAO’s profits. • The meat of the report is the SEC applying the Howey test to DAO tokens and determining that they were securities under SA33 to the extent they were offered for sale in the U.S. Therefore, the offer and sale of these tokens should have been registered with the SEC. This is an obviously correct conclusion. • The emergence of “utility” tokens is partially in response to this SEC report. The word “Utility” really means “we know about the Howey test in the U.S. and we think applying it to this token would result in it not being found to be a security under SA33.” • BOTTOM LINE – the Howey test applies to tokens just like it applies to everything else. Calling something a “token” does not magically exempt it from analysis.

12. Back in the SA33 matrix – finding a registration Exemption • GamBTC.io may feel that issuing a purely “utility” token is suboptimal. OR, it may not have complete confidence that a Howey analysis would conclude that its token is not a security. OR, it may actually want the token to act, at least in part, as an investment contract because of the benefits that can provide. • Also, being treated as a security may be especially attractive if there are a limited number of wealthy U.S. investors prepared to invest large sums. For example, if GamBTC.io could find 20 qualified U.S. individuals willing to invest $1million each, then it may actually be more efficient to limit the issuance to these 20. • In these cases, if GamBTC.io wants to access U.S. investment capital and comply U.S. securities laws, it will treat its tokens as falling under SA33, subject to a registration exemption. • There are MANY available exemptions to SA33’s registration requirement – too many to cover in detail here. The specific exemption GamBTC.io selects depends on several related factors. • Regulation D (“reg d”) is a useful grouping of exemptions to work through.

13. The Reg D grouping of exemptions • Reg D is a SEC regulation, based on SA33, governing THREE (3) private placement exemption rules (Rules 504, 505 and 506). • A private placement is the sale of securities to a relatively small number of select investors (individuals or entities) as a way of raising capital. Private placements contrast with public offerings which are available to the general public. • The select investors must be “accredited” or “sophisticated”, meaning that they satisfy one of the requirements regarding income, net worth, asset size, governance status or professional experience. • With a private placement, no filing of a prospectus with the SEC is required. Rather, a private placement memorandum (a “PPM”) is provided to prospective investors only. • SEC Form D must be filed with the SEC by the company issuing the securities under Reg D. Completing SEC Form D is relatively simple. • Beware! Each exemption has its own nuances and requirements!