Robinhood’s tokenized stocks have stirred up a legal hornet’s nest

Robinhood’s tokenized stock offerings in Europe have ignited debate over the legality of tokenizing equity, especially that of private companies like OpenAI. 

OpenAI said Robinhood’s unapproved OpenAI tokens offer no equity ownership rights, causing regulators in Lithuania to open a formal inquiry. But that’s just the start. With concerns over how different jurisdictions approach tokenized shares, the boundary between innovation and illegality, and whether there are sufficient legal protections for stock token holders.

To unpack the legal complexities behind tokenized stocks, Magazine spoke with Yuriy Brisov of Digital & Analogue Partners, Joshua Chu of the Hong Kong Web3 Association and Yulia Murat, head of regulatory affairs at Global Ledger.

The conversation has been edited for clarity and length.

Magazine: What is the legal foundation for tokenizing stocks, and how does it differ between public and private shares?

Brisov: Tokenization emerged as a technical solution — not a legal one. It’s simply a digital format for this existing brokerage structure. Usually, the voting rights are limited, but the economic rights are transferred to clients. This model is legal in the US and Europe.

The concern arises with private shares. If Robinhood only offered tokenized versions of publicly traded shares, there wouldn’t be many legal issues because the tokenized share is still the same share, just in a different format. In the US, a company can still issue paper share certificates signed by two officers, or go digital and issue them through a brokerage. A tokenized share is essentially a digital certificate.

Private shares, however, come with restrictions. You often need company or shareholder approval to resell. There are usually preemptive rights that require you to offer the share back to the company or other shareholders before selling it to outsiders.

Chu: This got headlines because OpenAI publicly condemned it. That’s because these synthetic wrappers are often created without understanding the rights attached to the original shares. Does the seller even have the right to offer this? If not, buyers may end up holding something that’s either worthless or comes with liabilities. If it breaches shareholder agreements, depending on the severity, it could have legal consequences.

Robinhood knew the risks. When they launched the tokenized shares, they said these are just synthetic representations. But if they’re profiting and using others’ trademarks, it opens the door to legal issues — not just securities law, but trademark infringement and broader compliance violations.

Magazine: When do tokenized shares cross the line into unregistered securities offerings?

Brisov: Robinhood and others are now saying they’re not reselling shares, but rather selling interests in shares. That’s a slippery slope that brings us to the Howey Test, which determines whether something is a security. If you invest money into a common enterprise expecting profits solely from others’ efforts, then it’s a security.

Most tokenized share offerings would likely fall under this definition. In both US and European law, what matters is the economic reality of the transaction, not what the documents say. If I’m buying a derivative of a stock, expecting profit and doing nothing else, that’s clearly a security.

Chu: Under Section 19 of the Securities and Futures Ordinance (SFO) here in Hong Kong, it’s actually written into the law that the Stock Exchange of Hong Kong (HKEX) — which is a limited company — is the only entity that can deal with Hong Kong corporate shares.

You’re probably familiar with [American Depositary Receipts] — the mechanism allowing Americans to buy foreign company shares without directly going into foreign jurisdictions. You haven’t seen Hong Kong doing that a lot because of the monopoly provision under the SFO. If you do it and you’re successful, you’re likely to face litigation not just from regulators, but from the stock exchange itself. If HKEX wants to issue or list tokenized shares, they can. The law doesn’t prohibit using technology to record share ownership differently.