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Today, in furtherance of our investor protection mission, the Division of Corporation Finance clarified how the federal securities laws apply to certain offerings and registrations of securities in the crypto asset markets.[1] The Division’s statement does not address whether something is or is not a security but provides guidance for issuers of securities. Offerings and registrations for which this statement may be relevant involve equity or debt securities of issuers whose operations relate to networks, applications, or crypto assets. Other offerings and registrations for which this statement may be relevant involve crypto assets offered as part of or subject to an investment contract. Registration or qualification is not required in connection with an offering of a crypto asset if the crypto asset is not a security and not part of or subject to an investment contract. The statement reflects the Division’s observations regarding disclosures provided in response to existing requirements and takes into account crypto-related disclosure questions the Division has received.
This guidance might be helpful for a company that is:
- developing a blockchain and issuing debt or equity;
- registering the offering of an investment contract in connection with an initial coin offering;
- issuing a crypto asset that itself is a security because, for example, it provides a revenue stream based on the issuer’s performance; or
- integrates non-fungible tokens into video games and is issuing debt or equity.
The Division’s statement is not a definitive how-to guide for the come-in-and-register invitation that befuddled so many in recent years.[2] Rather, it is a small step in identifying relevant disclosures so that investors have material information about the projects and businesses in which they are investing. The Division highlights, for example, disclosures about the development timeline of a crypto network or application, its functions and processes, and a clear explanation of the rights of holders of the relevant security, such as dividends, profit-sharing, or voting rights. The statement reflects the fact that a token that is not a security can be sold in a securities offering, but also allows for the possibility that a centralized crypto company might issue equity or debt securities or a crypto asset that is itself a security.
People with additional questions about how the existing disclosure requirements apply in the context of crypto assets may reach out to the Division with these questions. Several ways to contact the Division are available at https://www.sec.gov/about/divisions-offices/division-corporation-finance/division-corporation-finance-contact-us. The Crypto Task Force also welcomes inquiries and feedback on this statement through crypto@sec.gov.
I would like to thank Cicely LaMothe, Acting Director of the Division of Corporation Finance, and her staff for their diligent work to provide clear statements about the applicability of securities regulations to crypto assets.
