ICYMI: Corp Fin Director Jim Moloney issued a statement that accompanied the SEC’s announcement of an Interpretive Release clarifying the application of the securities laws to digital assets. Focusing on when an investment contract comes to an end, the statement was called “The Last Chapter in the Book of Howey.”

In the Interpretive Release, the Commission clarifies when, in its view, a non-security crypto asset would no longer be subject to an investment contract. In short, the investment contract terminates either upon: (1) the fulfillment of the representations or promises of essential managerial efforts, or (2) the failure to satisfy those representations or promises. In both of those situations, the investor is no longer expecting to profit based on the essential managerial efforts of others, a key element of Howey. I highly recommend that those who want to know more read the Interpretive Release in full to appreciate the examples and understand the Commission’s views of the considerations that go into a determination of whether and when either of these two situations may occur in the crypto asset context.

Jim notes that the application of this guidance could extend beyond crypto:

While the Interpretive Release is published in the context of modern-day crypto assets, the framework for assessing when an investment contract terminates can easily apply to that flourishing Floridian orange grove or other non-crypto assets. Howey could have fulfilled his representations and promises as indicated at the outset. For example, the maintenance contract could have been limited to watering and caring for the orange trees for so long as they were fruit-bearing. Alternatively, the investment contract could have terminated when Howey failed to satisfy his promises. For example, if a disastrous hurricane or disease completely destroyed the groves, Howey could have publicly and unequivocally told his investors that he was abandoning his intention to water and care for the trees, ending the investment contract. Beyond the orange grove example, more creative storytellers than I will no doubt start to imagine how this guidance could apply in other contexts.

If you joined PLI’s SEC Speaks, you probably heard Corp Fin Deputy Director Sebastian Gomez Abero refer to Jim’s statement as “a ‘Little Golden Book’ of Howey, including how an investment contract is formed and how it ceases to exist.” Well, the Corp Fin Staff has now taken the kids’ book theme a step further and made a Little Golden Book-inspired video with some of the content of that statement that gives the “TL;DR.”

While Sebastian suggested not reading Jim’s statement to your kids at night, the YouTube video might be quite digestible to kids – even in elementary school. Maybe our kids will finally understand what we’re saying when they ask what we do for work?

– Meredith Ervine