Overstock.com, Inc. may be the first company in the United States to offer digital securities.
The online retailer recently filed a prospectus with the Securities and Exchange Commission (SEC) that details its plans to offer uncertificated securities that would be purchased and transferred using technology similar to that used for Bitcoin digital currency.
In 2014, Overstock became the first major retailer to accept payments in Bitcoin. The company is now poised to test the viability of digital securities, which pose similar regulatory, technological, and security concerns.
Digital currency only exists electronically as a computer file. A network tracks the transfer of the computer files from purchaser to seller, but does not record the nature of the transaction. While an estimated market capitalization in excess of $10 billion in Bitcoin is now in circulation, concerns about security and reliability are two key reasons why virtual currency is not yet a mainstream form of payment.
According to Overstock’s prospectus filed with the SEC, the company’s digital securities will be “uncertificated securities, the ownership and transfer of which are recorded on a cryptographically-secured distributed ledger system using technology similar to (or the same as) the distributed ledger technology used for trading digital currencies.” The digital securities will not be listed for trading on any stock exchange or through any other national trading platform. Rather, they will be issued, available for purchase and traded exclusively on a specific trading system that is registered with the SEC as an alternative trading system, or ATS.
Digital securities are attractive because they enable trades to settle immediately or nearly immediately, unlike traditional securities that settle on the third day following the day the money is exchanged. In addition, because they do not involve certificates, securities holders are able to hold their securities directly without the use of a middleman, such as a brokerage firm.
Due to the novel nature of the digital securities offering, Overstock acknowledges that it comes with certain risks. The company specifically highlights the following risks of digital securities:
A rapidly-evolving regulatory landscape focused on digital currencies and, potentially, on the technology underlying distributed ledgers, which might include security, privacy or other regulatory concerns that could require the ATS to implement changes to its digital securities trading system that could disrupt trading in our digital securities;
The possibility of undiscovered technical flaws, including in the process by which system participants come to agreement on the state of the distributed ledger and the ownership of the digital securities recorded on the ledger;
The possibility that cryptographic security measures that authenticate transactions and the distributed ledger could be compromised, which could allow an attacker to alter the distributed ledger and the ownership of digital securities recorded on the ledger; and
The possibility of breakdowns and trading halts as a result of undiscovered flaws in the ATS that could prevent trades for a period of time
The prospect of digital securities has the potential to significantly shake-up how corporate securities are publicly offered and traded. However, it remains to be seen how willing regulators and investors will be to gamble on this new, and largely untested, technology.
For years, digital assets operated in a legal gray area, a frontier where innovation outpaced the reach of regulators and law enforcement. In this early “Wild West” phase of finance, crypto startups thrived under minimal oversight. That era, however, is coming to an end. The importance of crypto compliance has become paramount as cryptocurrency has […]
Supreme Court and Title VII: Implications for Reverse Discrimination
Earlier this month, the U.S. Supreme Court issued a decision in Ames v. Ohio Department of Youth Services vitiating the so-called “background circumstances” test required by half of federal circuit courts.1 The background circumstances test required majority group plaintiffs pleading discrimination under Title VII of the Civil Rights Act to meet a heightened pleading standard […]
Special purpose acquisition companies (better known as SPACs) appear to be making a comeback. SPAC offerings for 2025 have already nearly surpassed last year’s totals, with additional transactions in the pipeline. SPACs last experienced a boom between 2020–2021, with approximately 600 U.S. companies raising a record $163 billion in 2021. Notable companies that went public […]
Short Form Merger: Streamlining the Process for Businesses
Merging two companies is a complex legal and business transaction. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process that involves important corporate governance considerations. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process. However, […]
Tariff Response Options for Small Businesses Facing Financial Distress
The Trump Administration’s new tariffs are having an oversized impact on small businesses, which already tend to operate on razor thin margins. Many businesses have been forced to raise prices, find new suppliers, lay off staff, and delay growth plans. For businesses facing even more dire financial circumstances, there are additional tariff response options, including […]
Common Causes of Partnership Disputes and How to Resolve Them
Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
