The legal aspects and regulations of the tokens are designed by the Securities and Exchange Commission (SEC), which is the body in charge of providing transparency and trust in financial information between companies and investors involved in the securities industry (stock exchange, options, bonds and other electronic securities markets).
Security tokens are the blockchain representation of traditional security; therefore, the SEC heavily regulates each security token offering to ensure compliance with securities laws. BRET Real Estate Tokenization, as an investment opportunity issued from the United States, participates in regulations S and regulations D issued by the SEC.
Some requirements (like having a placement memorandum and a subscription agreement) allowed the offer of fractional real estate and sold for tokens not to register their offer with the SEC but to be regulated by it.
REG D & REG S
- Regulation D (Reg D) sets forth the guidelines for raising American investors’ capital without registering them with the SEC. To comply with the regulation, clients must be accredited investors and have a net worth greater than $1 million (excluding the main home) or have income higher than $200,000 individually or greater than $300,000 as a couple. In addition, these tokens or securities will have a “blocking” period of 1 year in which they cannot be exchanged.
- On the other hand, regulation S (Reg S) is designed for investors outside the United States who invest within the American territory. Reg S ensures that the securities markets are fair and do not require registration with the SEC. The investor must be given a Private Placement Memorandum (or PPM) describing the investment in legal and financial terms. Together with the PPM, a subscription agreement is sent that allows the collection of the money for the investment. For this law to be implemented, no investor on American soil can access the offer.
Ultimately, both regulations complement each other perfectly since Reg S allows non-US and not necessarily accredited investors to access a token offering. Reg D covers the US territory for US investors. At BRET, we are governed by the two regulations to allow more investors access to our issues, regardless of their country of residence.
Are there more validation mechanisms for BRETs (BRET Real Estate Tokens)?
There are other mechanisms to very the legitimacy of a token. Some are corporate documents and the public record of the city where the property is located.
Once the offering of the tokens is completed, the property title is updated in the name of an entity used solely for said issuance, known as an SPV or Special Purpose Vehicle for its acronym in English. Then the city’s public record is updated and shows that the entity is the sole owner of the property. In this government registry, you will find all the information and legal records for both natural persons and companies. Some types of records that may be found are bankruptcy and foreclosure filings, property records, and criminal records. The government gives the public free access to these records.
Lastly, in March 2022, President Biden established a nine-month schedule for various federal agencies to coordinate their efforts, produce reports and provide recommendations for regulation and policy across a variety of digital assets. Each project must be updated constantly to ensure compliance with emerging regulations.
At BRET Real Estate Tokenization, we comply with current and new regulations to ensure the legality and transparency of our real estate tokens. Visit our website to learn how to be part of the evolution of the real estate market in the United States starting at just $100.