SEC Determines Turnkey Jet Tokens Are Not Securities. But Should You Buy Them?
On April 3, 2019 the SEC’s Division of Corporation Finance issued a no-action letter stating that the Division will not recommend enforcement action to the Commission if, in reliance on your opinion as counsel that the Tokens are not securities. In short, this is the right response because the tokens operate similar to a traveler’s check.
This is what the company’s lawyer had to say to the SEC (italics and underlining are mine):
"Only Consumers will be able to buy Tokens. The Tokens will not represent a TKJ obligation to supply a specified number of flight hours regardless of cost.
Rather, the Tokens will represent a TKJ obligation to supply air charter services to the Consumer/Token holder at a 1 USD:1 USD value
, to allow for the variable costs of charter flights, jet fuel, catering, and other incidental costs related to each charter.
When a Token enters circulation, TKJ Consumers may freely trade or exchange the Tokens in their possession between any other Consumer, Broker or Carrier within the Network. Only TKJ has the authority and capability to issue Tokens into circulation, or upon redemption remove them from circulation. In addition to the terms of the smart contracts restricting transfer of the Tokens TKJ will implement technical restrictions via the Platform and Network that restrict transfers of Tokens to TKJ Wallets only, and not to wallets external to the Platform.”
“...the interest represented by a Token will be
a consumptive right to redeem the escrowed funds
to pay for air charter services. As such, neither an “investment contract,” a “note,” an “evidence of indebtedness” nor another form of security is present. There is
no reasonable expectation of profit derived from the efforts of others
, and the Consumer’s expectation will be to enter into a consumer transaction for
prepayment of air charter services
In summary, purchasing a TKJ token is akin to an unsecured loan to the airplane operator that achieves the twin holy fails of financial structuring: putting the purchaser at the bottom of the capital stack of the company without compensating the purchaser for that risk. It may not be a security but I’d still think twice before buying the token.