By Scott R. Chichester CPA

President of Madison Park Advisors Corp


The name comes from the acronym RAWSPD* “Reg A with Simultaneous Property Dividend”.

The Current State of Affairs:   During the past year, financial services firms have been assessing the disruption caused by cryptocurrencies and the phenomena of “Initial Coin Offerings” (ICOs).  With Spain and Russia having announced the development of their own cryptocurrencies and Japan contemplating a similar initiative, it is clear that cryptocurrencies are here to stay.

The question is how to regulate cryptocurrencies?  Different U.S. regulators treat cryptocurrencies differently. The U.S. Securities and Exchange Commission (SEC) says that “some” cryptocurrencies are securities, the IRS says that they are property subject to capital gains treatment on resale and the CFTC has called them “exempt currencies”.

Not surprisingly, the investment community sees ICOs or the distribution of “tokens” as a completely new way to raise capital.  But, the regulatory uncertainty concerning ICOs leads to great confusion for entrepreneurial companies seeking capital by means of an ICO.

This whitepaper presents a simple means for operating companies to use current laws, rules and regulations to raise capital and distribute a cryptocurrency.

The Basic Premise:  The simplicity of the structure is as follows:

  1. Previous to the registration, the Company creates its cryptocurrency tokens.
  2. The Company declares a dividend distributing the token, pro rata, to shareholders as of a future record date.
  3. The Company files a Regulation A offering of stock via filing of Form 1/A.

This is a path.  It is not the only path.  However, the Raw Spud has many merits.


  1. Risk mitigation. One benefit of the Raw Spud is that rather than bypass the SEC’s review and consideration, the registration process calls for full disclosure and a dialogue with the SEC. The purpose of the SEC review and comment period on registration statements is full disclosure for the investor.  The SEC is NOT legally blessing anything and reserves every right to prosecute after any registration, however, as mentioned earlier, in practice, it should enable (i) a dialogue with the SEC about the cryptocurrency token, (ii) the SEC to ask questions, and (iii) the SEC to require disclosures that will keep potential stockholders adequately informed.  To date, most ICOs have been direct token offerings and have bypassed the SEC altogether.

Risk beyond the regulators.  There is not only risk from the SEC, but I have also noticed that there are lawyers who are now trying to create class action civil lawsuits for those who have lost money investing in ICOs.  Honest and robust disclosure, as in a Reg A filing with the SEC, would mitigate the risk of these type of lawsuits

  1. Access to Hedge Funds Quite a number of hedge funds require investments only in a public company. Companies that file Form 1/A are eligible for a Form 15c-211 application to obtain a ticker symbol for their stock which will be publicly traded. This opens up the issuer to a whole new cadre of institutional investors.
  2. Tax benefits to the issuer. The IRS has been clear and unequivocal: cryptocurrencies are property that are subject to taxation on any gain on resale. In the case of a new cryptocurrency, the cost basis would be near zero.  The issuer would only be able to apply the legal and development costs to the cost basis.  Thus, in a direct token offering, nearly all the capital raised would be subject to taxation at the combined federal and state corporate tax rate of approximately 25%.  Thus, on a $20 million raise, we are talking about nearly $5 million off the top in tax liability.

Utilizing the Raw Spud, the sale of common stock and the issuance of the property dividend are not  taxable events for the issuer.  This can make a massive difference in the capital raised.

Note:  Tax issue for the stock purchaser.  One tax implication of the Raw Spud, is that the purchaser of the stock will have to pay tax on the market value of the property dividend received.  However, this tax can be mitigated.  For one, upon issuance of the dividend the market value may not be totally clear yet.  Additionally, the stock purchaser may be eligible for a Discount for Lack of Marketability (DLOM) which would further mitigate the market value the stock purchaser assigns to the dividend.


  1. Full Disclosure. Primarily, the investor gets full disclosureThe details and metrics of the cryptocurrency are known.  Additionally, since the securities law requires significant disclosures about the owners of the stock, the existing laws would exclude bad actors.
  2. Immediate liquidity. Since Reg A stock is free trading, the purchaser gets immediate liquidity.
  3. Stock and Asset. The purchaser obtains free trading stock with knowledge that it includes a future distribution of property.



  1. An acknowledgment of what the SEC is up against:

With cryptocurrencies less than 10 years old and just becoming mainstream in the last 2 years, the capital raising space has been massively disrupted.  It is my opinion that the investment community must be honest with itself and acknowledge that the sharks and scamsters are circling.  So, the need for regulators to create guard rails is understandable and warranted.    Use of the Raw Spud acknowledges this fact. By declaring the cryptocurrency dividend prior to the Regulation A registration, it binds the registrant to securities law and full disclosure about not only the Company itself, but also the details about the cryptocurrency and the proposed dividend.  Since the SEC Form 1/A requires an SEC review and comment period, the SEC now is given the opportunity to ask more about the cryptocurrency and proposed dividend.  Thus, while the issuer is not conceding that the cryptocurrency is a security, via the dividend declaration prior to registration, it has put the cryptocurrency within the purview of the SEC and gives the SEC the ability to improve the disclosure that will be provided to investors regarding this offering by the registrant (including information about the cryptocurrency dividend).

So, what does this effectively do?

  1. For one, any previous bad actors would not be allowed to be promoters.
  2. Insiders would be known. Any officers, directors, or more than 5% stockholders would have to be disclosed.
  3. Those receiving the dividend would also be stockholders so would have full stockholders’ rights as written in statute and tried in the courts over many years.
  4. As a result of the SEC staff’s review and comment on the registration statement, investors should get full disclosure about the Company and the property dividend.


  1. A real win for the Jobs Act

The most significant change to the JOBS Act was the change to Regulation A effective June 19, 2015.  The revised regulation made it easier for companies to raise capital and changed the amount capable of being raised under Regulation A from $5 million to $50 million.  This change has made a moderate impact to date.  The SEC reports that in the first 16 months since its effective date, 81 issuers had been qualified under Regulation A.  Compare that to over 1,350 new cryptocurrencies in the last several years – and it is plain that Reg A is being underutilized. If the market embraces the Raw Spud, it could turn Reg A and the JOBS Act into a home run for the SEC.

Indeed, it is no secret that 2017 ICO activity has surpassed traditional venture capital.  Through November, the ICO market had raised $3.6 billion in year-to-date capital.  Much of this was done outside the United States.  The purpose of the JOBS act was literally “Jump Start Our Business Start-ups”.  Well, here is the opportunity to energize the U.S. capital markets.  If the investment community, and the SEC alike, can embrace Reg A, it could completely revolutionize not only the ability of smaller enterprises to raise capital, but will completely revitalize the near non-existent small or regional broker-dealer market.


  Raw Spud Direct Token Offering SAFT
Registered Offering? Yes n/a No
Can sell to a large amount of non-accredited investors?  






Company can sell direct to purchasers without broker-dealer?  






Proceeds of sale taxable in the U.S.? No Yes Yes
Purchasers  can use Bitcoin and Ether to make the purchase? Yes Yes Yes
Is stock free-trading? Yes n/a No


As can be seen above, the Raw Spud has many of the same benefits of a direct token offering and has a far superior reach than the SAFT, The SAFT cannot be offered to a broad range of non-accredited investors.  Additionally, of the 3 paths to distributing a token, only the Raw Spud will be free trading upon issuance.

The Nevada Factor:

One detail of the Raw Spud is that the dividend must be issued from a Nevada Corporation.  The reason for this lies in Nevada Corporate law.  Most states only allow the declaration of a dividend if it is done out of “Earnings and Surplus” or positive retained earnings.  Not so with Nevada law.  The exact Nevada Statute is (NRS 78.288).  It reads, in part, as follows:

 NRS 78.288  Distributions to stockholders.

      1.  Except as otherwise provided in subsection 2 and the articles of incorporation, a board of directors may authorize and the corporation may make distributions to its stockholders, including distributions on shares that are partially paid.

      2.  No distribution may be made if, after giving it effect:

      (a) The corporation would not be able to pay its debts as they become due in the usual course of business; or

      (b) Except as otherwise specifically allowed by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution.

      3.  The board of directors may base a determination that a distribution is not prohibited pursuant to subsection 2 on:

      (a) Financial statements prepared on the basis of accounting practices that are reasonable in the circumstances;

      (b) A fair valuation, including, but not limited to, unrealized appreciation and depreciation; or

      (c) Any other method that is reasonable in the circumstances.

As you can see Nevada gives the board of directors broad discretion in issuing a dividend which is far different from most states.


Howey Test.  The ICO market has brought The Howey Test to the forefront of the discussion.  The Howey case famously laid out the 4 factors for something to be declared an “investment contract” and therefore “a security”.   Believe it or not, I am leaving the “security” or “not security” issue alone here.  After researching it ad nauseum, it is clear that the consensus amongst the legal community is “it’s a facts and circumstances” situation.  Each set of facts and circumstances is likely to be different


Indeed, the guidance found in the following SEC references, supports this legal position:

  1. SEC Release 33-929
  2. CDI 103.01 (text below)

Consider Q&A 103.01 of the CDI, addressing Securities Act Section 2(a)(3) to illustrate this proposition, which states:

“Question: If a company declares a dividend that is payable in either cash or securities at the election of the recipients, does the declaration of the dividend need to be registered under the Securities Act?

Answer: No, as there is no sale of the dividend shares under the Securities Act. [Nov. 26, 2008]


The “Raw Spud” is the first path to token distribution that actually allows the SEC to become part of the discussion during the process – instead of after the fact. The SEC will always want to stop the public from being scammed or abused.  But what if the issuer is:

1.  a company in earnest

  1. has done serious due diligence regarding the dividend and has a legal opinion stating that it is exempt from registration whether deemed a security or not
  2. willing to have an open dialogue about the details of the cryptocurrency
  3. diligent in its disclosure about both the company and the pending dividend?


I still believe the SEC and the investment community can meet in the middle to establish an orderly way to both take advantage of this new and exciting facet of the capital markets and adequately protect investors.

*RAWSPD AND RAW SPUD are service marks owned by Scott Chichester and Madison Park Advisors Corp



I was at Goldman Sachs in the 1990s, which was a very exciting time.  In that period the market saw this fascinating phenomenon called the Internet take the markets by storm.  Goldman was in the thick of it, taking public some pioneering companies such as America Online, Yahoo and Netscape.  However, as exciting a time as that was–it is nothing compared to what I am observing with the cryptocurrency markets and Initial Coin Offerings.

Strangely enough, it was the realization of this 1990’s Internet boom that made the existing cryptocurrency boom possible.  Cryptocurrency had been conceptualized since the 1960’s, however its problems and limitations were not broadly solved until first, the existence of the Internet, and secondly the brilliance of Bitcoin founder, Satoshi Nakamoto,  and his 9-page whitepaper.

Thus, if you really think about it, the current fiat currency markets have literally developed over many, many centuries with each currency finding its place in the world economy.  The bond and equity markets have been mature, in their current form, for at least a century.  However, the cryptocurrency market is extremely young – not even 8 years old!   That youth and rawness of market leads to tremendous opportunity.  By now, most people have heard (and cringed) about the fact that $100 invested in Bitcoin in 2010 would now be worth in excess of $100 million.  This is an indication of just how powerful the growth of a truly new market is.

Think you missed the boat?  Think again.  As recently as 2014, Ethereum was launched through an Initial Coin Offering.  In August of 2015 it was trading as low as  75 cents per unit of Ether and less than 2 years later in June of 2017 it had topped $373 per unit of Ether!!!

You may be surprised to learn that there are currently over 850 cryptocurrencies trading right now.  You can find such creatively named coins as “NEO”, “Monero”, “Litecoin” and “Dash”.  So, we have gone from no cryptocurrency to over 850 in just 8 years!  This may sound like the market is overcrowded.  However, to put the size of the  cryptocurrency market in perspective, today, all digital currencies traded $5.4 billion in total volume.  Comparatively, traditional fiat currency markets trade an average of $5.3 trillion per day!  The traditional currency markets are still one thousand times as large as the digital currency markets!  Isn’t it reasonable to assume that as cryptocurrencies continue to gain traction they will nab their share of this $5.3 trillion per day?  Even a small percentage grab of the fiat currency market will translate to a many fold increase in the size of the cryptocurrency market.  Additionally, currently, only 1 billion of over 7 billion people on earth have a bank account.  Isn’t it also reasonable to assume that since cryptocurrencies will reach far more people than traditional currency markets (since cryptocurrencies don’t require a bank account) that the overall market for all currencies (crypto and fiat combined) will increase?

Now, how are new cryptocurrencies created?  Please say hello to the Initial Coin Offering or “ICO”.   An ICO is where a company creates a new currency or “coin” that is exchanged for one of the more popular cryptocurrencies like Bitcoin or Ether.  The newly issued coin or “token” itself has some utility and can be used for some exchangeable good or service in the marketplace.   The more confidence the marketplace has in that token’s utility or future utility, the more they are willing to exchange for that token.  This describes the recent meteoric rise of Bitcoin.  It is becoming more and more mainstream – and therefore confidence in its utility is rising rapidly.

ICOs have been around since 2013, but in 2017 they are changing ALL the rules of traditional capital raising.   In early August of this year, ICOs outstripped traditional venture capital in terms of total year-to-date capital raised.  It is not hard to see the draw for an entrepreneur:  significant, significant amounts of capital, little or no equity give up, no relinquishment of board seats, and limited regulation.  And how about the room for growth for the entrepreneur?  While, as noted above there are only 850 cryptocurrencies extant today– there are currently approximately 15,000 public companies in the United States alone.

Those interested in participating in the cryptocurrency market, will also find a refreshing degree of liquidity.   Anyone who has played the over the counter markets in stocks has been frustrated by the maddening lack of liquidity.  For example, today, traded a grand total of $714 million in volume across 10,364 securities and today’s NASDAQ total volume was $1.5 billion.  Combined, these two equity markets traded about $2.4 billion in volume for the day.  Compare this to the daily $5.4 billion cryptocurrency volume– and you can see that a relatively small pool of tokens produces a far superior daily liquidity compared to a much larger pool of stocks.

Are you starting to see what I’m seeing?  We are right in the midst of a very rare event.  The birth of an entirely new market that is disrupting both a centuries old currency market and turning traditional equity markets on their head!

Recommended for Further Reading and Research:

For a basic, but powerful understanding of how Bitcoin and the blockchain work, I would highly recommend: Mastering Bitcoin, by Andreas M. Antonopoulos (1st 3 chapters only)

To understand cryptocurrency’s overall impact on the world, I also highly recommend the same author’s follow-up book: The Internet of Money.

To research, and get yourself familiar with the myriad and fascinating cryptocurrencies out there, I highly recommend the website:

Good Hunting!