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We must have entered the “crypto phase” of Corp Fin’s to-do list, because yesterday, the Staff of the SEC’s Division of Corporation Finance published a statement on the application of federal securities laws to crypto assets. This is a topic that folks in the crypto industry have been wanting for years.

The move to share guidance is consistent with the agency’s about-face on regulating crypto. I’m sure it’s no coincidence that it’s arrived on the heels of last week’s statement on stablecoins. This one doesn’t address whether an asset is a “security.” Rather, it explains how the disclosure rules apply to equity or debt crypto assets that are securities. For purposes of the statement, a “crypto asset” is an asset that is generated, issued, and/or transferred using a blockchain or similar distributed ledger technology network (“crypto network”), including, but not limited to, assets known as “tokens,” “digital assets,” “virtual currencies,” and “coins,” and that relies on cryptographic protocols.

It’s going to take some time for the SEC’s Crypto Task Force to deliberate and issue a comprehensive regulatory framework for these assets (we’ve blogged about some recommendations). So, in the meantime, the statement sheds light on how issuers whose operations relate to networks, applications and/or crypto assets can comply with existing Reg S-K disclosure requirements. Specifically, Corp Fin gives examples of what issuers could discuss in response to:

1. Description of Business

2. Risk Factors

3. Description of Securities

– Rights, Obligations, and Preferences

– Technical Specifications

4. Supply

5. Directors, Executive Officers, and Significant Employees

6. Financial Statements

7. Exhibits

The Staff also noted that nothing in the statement is intended to suggest that registration or qualification is 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. In a statement, Commissioner Hester Peirce – who was anointed as “Crypto Mom” many years ago – gave more color:

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.

This for sure won’t be the last update we see on crypto and the securities laws. A Crypto Task Force Roundtable is happening today at the SEC. Last week, (then Acting) Commissioner Uyeda directed the Staff to review statements the Staff had previously issued on crypto topics – with an eye toward deregulation.

I couldn’t find this statement on SEC.gov. Maybe I missed it. But at any rate, it was on “X” and reported by all the crypto outlets, and I guess that’s where we get news now.

– Liz Dunshee