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After announcing and canceling an open meeting last week to consider whether to issue a release proposing new rules to create a tailored offering regime for certain investment contracts involving crypto assets, the SEC announced yesterday that it approved, without an open meeting, a rule proposal titled ‘Regulation Crypto Assets.’ Here’s the 402-page rule release and the 3-page fact sheet. Commissioners Peirce and Uyeda issued statements in support of the proposal, as did Chairman Atkins, who provided a succinct explanation of the proposed rules in his statement:

Today’s proposal would create a fit-for-purpose framework—consistent with the Commission’s recent interpretation—for non-security crypto assets that are subject to an investment contract. Specifically, the proposed rules include tailored offering exemptions, as well as a safe harbor that would provide clarity for issuers, investors and other market participants as to when the related investment contract ceases to exist. Of course, the proposed rules include certain conditions that preserve core investor protections.

The proposed rules include two offering exemptions tailored for innovations in the crypto asset markets: a “startup exemption,” which would allow for offerings up to $5 million during a four-year period, and a “fundraising exemption” allowing for offerings of up to $75 million each year.

Each proposed exemption includes principles-based disclosure requirements tailored to the unique aspects of crypto assets. The proposed fundraising exemption also requires disclosures regarding an issuer’s financial condition, including financial statements that must be audited at certain capital raising thresholds.

Additionally, the proposed rules include an “investment contract safe harbor.” Under this safe harbor, if the issuer certifies to the Commission that it has ceased or terminated all essential managerial efforts that it promised to undertake under the investment contract and satisfies certain other conditions, then the Commission would no longer deem the non-security crypto asset to be subject to an investment contract and, therefore, no longer subject to the authority of the Commission.

The proposal also would preempt state registration and qualification requirements for offers and sales of covered investment contracts pursuant to one of the exemptions contemplated by Regulation Crypto Assets and for certain secondary market transactions. The fact sheet and press release also make clear that proposed Regulation Crypto Assets builds on and complements the SEC’s interpretive guidance issued earlier this year regarding what digital assets are, and are not, securities.

There was some speculation online that the cancellation of the open meeting last week had to do with the status of the CLARITY Act. Chairman Atkins and Commissioner Uyeda both addressed the potential for (and welcomed!) crypto legislation in their statements:

Chairman Atkins: “Given the progress made in Congress to date on market structure legislation, let me be clear up front: legislation remains indispensable to enacting “future-proofed” rules of the road that are durable enough to protect the work we are undertaking today from being unwound by a future rogue regulator. The SEC has and will continue to support Congress in delivering the CLARITY Act to President Trump’s desk.”

Commissioner Uyeda: “Notably, with respect to any legislative developments, nothing in the proposal precludes the Commission from taking into account such developments in formulating or responding to future crypto policies. To the contrary, legislative CLARITY would be beneficial to market participants and regulatory agencies.”

Both also recognized and thanked (in addition to the Corp Fin and DERA staff) Commissioner Peirce for her leadership on crypto issues. I have to imagine it’s satisfying that this proposal was approved before she departs the SEC this fall. We all know how disappointing it feels when a big M&A deal or IPO you’ve spent countless hours on dies – or you switch jobs or go on parental leave when a deal has stalled, and you know you won’t be able to see it through to completion (if it ever closes).

– Meredith Ervine