Experience

Client:

Overstock.com

Issue: 

Following Overstock’s innovative move as the first major online retailer to accept bitcoin, the giant etailer filed plans to issue the first SEC-registered public offering of digital securities. Its plan for up to $500 million in digital securities, also named digital corporate ¬bonds, strengthens its leading role in Bitcoin

To introduce the concept to the SEC, Overstock decided to first issue a private placement debt security as a cryptosecurity. This positions Overstock as first-to-market with a real corporate bond issued on the blockchain. The offering can only be sold to accredited investors.

Industry experts note the use of digital currency technology as transaction rails to track the transfer of ownership of other types of assets, including shares of stock. Overstock’s digital securities will be uncertificated securities, the ownership and transfer of which are recorded on a cryptographically secured distributed ledger system. The securities will use the same distributed ledger technology used for trading digital currencies.

Key to Know: 

While Bitcoin 1.0 focused on bitcoin as a currency, Bitcoin 2.0 contemplates a variety of non-currency use cases for the bitcoin blockchain and technology underlying digital currencies. Digital securities are exactly the same securities as traditional securities, and users will manage their trading activities via a securities account with a broker-dealer, in a manner similar to using an online brokerage account.

When traditional securities are digitized and traded as digital securities, the key differences include the following factors:

  • Transparency:  Trade data (without identifying the buyer or seller) is immutably recorded on a distributed and publicly available ledger.
  • Immediate Settlement:  Publicly traded securities require three business days for delivery and settlement to occur, which is known as T+3. The historical reasons for this delay are no longer applicable. Digital securities will be delivered and settle immediately and cannot be “naked” shorted as a result.
  • Direct Ownership:  Publicly traded securities are held in a “street name” by broker-dealers instead of directly by the owner of the securities. In another modernization of historical practices, owners of digital securities will be record holders on the books of the issuer. This means that they ¬can receive dividends, vote and sell those securities directly, without permission from their broker-dealer

Offering in the Works: 

Welcomed by bitcoin observers as “radical” and “pushing the envelope,” Overstock’s pioneering offering needs legal guidance on a variety of fronts. A multidisciplinary team of Perkins Coie attorneys is providing comprehensive counsel in this unchartered territory. In late April 2015, Perkins Coie filed a $500 million Universal Shelf Registration Statement on Form S-3 for our client.

Perkins Coie continues to advise Overstock on such related issues as corporate, the Securities Act of 1933, broker-dealer relationships and decentralized virtual currency concerns. With the issuance of its cryptosecurity, Overstock will further its larger cryptofinance initiative, named Medici, which focuses on reducing trade settlement friction via the development of technology.