It’s one thing for an issuer to authorize a class of tokenized common stock, but as Commissioner Hester Peirce observed in a recent speech, things get more complicated once tokenized securities are distributed to the public – particularly if somebody other than the issuer of the securities is doing the tokenizing:
Market participants who distribute, purchase, and trade tokenized securities also should consider the nature of these securities and the resulting securities laws implications. For example, depending on the particular facts and circumstances, a token could be a “receipt for a security,” which is itself a security but is distinct from the underlying security held by the distributor of the token.
Alternatively, a token that does not provide the holder with legal and beneficial ownership of the underlying security could be a “security-based swap” that cannot be traded off exchange by retail persons. While blockchain-based tokenization is new, the process of issuing an instrument representing a security is not. The same legal requirements apply to on- and off-chain versions of these instruments.
This Skadden memo digs into some of the legal issues implicated by tokenization by third party distributors, including possible compliance challenges under the Investment Company Act, the potential need for distributors to register as broker-dealers, the possibility that the trading platform for tokenized securities might be a securities exchange, the need to comply with SEC & CFTC rules on swaps, as well as the potential applicability of anti-money laundering and know your customer regulations. So, while the SEC is willing to work with people on the issues associated with tokenization, there appears to be no shortage of issues to work through.
If one of your clients is considering joining a public company board, or if you work with a company that’s looking to add a new director, this Bryan Cave memo offers some helpful advice to prospective directors and companies about some of the areas that should be investigated during the due diligence process. Here’s the intro:
Retired senior executives often receive, or seek out, public company directorships as the next step in their journeys. Before accepting, they should carefully evaluate key areas to make sure they are prepared for the responsibilities and potential risks. Likewise, companies should consider assembling relevant briefing materials for potential candidates to streamline the process, potentially along with an NDA if they intend to share any confidential information, including by making directors or the auditors available for discussions.
Candidates should also be prepared to share relevant information with the company, or its search consultant, including consents to background checks and questionnaires.
Specific areas of inquiry for director candidates include legal and fiduciary duties, company health and reputation, board dynamics and governance, company strategy and outlook, board compensation, and time commitment, skills and experience fit. Topics for companies to explore include biographical data, independence and related party transactions, competitive overlaps, potential conflicts of interest, and legal and regulatory matters.
On Friday, the SEC announced that its Crypto Task Force was hitting the road to get input from people across the country in order to assist it in its efforts to establish a regulatory scheme for digital assets. The SEC’s website has a page devoted to the task force’s road trip, and here’s what it has to say about what it’s hoping to accomplish:
Following five insightful roundtables in Washington D.C. and hundreds of written submissions from industry participants across the country, the SEC’s Crypto Task Force is hitting the road and coordinating opportunities for additional stakeholders to meet with Commissioner Hester Peirce, who leads the Crypto Task Force.
The Crypto Task Force wants to hear from those who weren’t able to travel for the roundtables, and from voices that may have been historically underrepresented in other policymaking efforts. The Crypto Task Force is acutely aware that any regulatory framework will have far-reaching impact, so it wants to ensure that outreach is as comprehensive as possible.
Commissioner Peirce and members of the task force will be visiting several cities in the coming months, and they are particularly interested in hearing from representatives of crypto-related projects that have 10 or fewer employees and are less than two years old.
The page has information on the dates and locations of the various roundtables, as well as instructions on how to make a request to participate in the dialogue. Regrettably, there’s nothing in there about how to purchase tour merchandise. I also think the SEC missed an opportunity by not kicking off its announcement of the task force’s road trip with a classic intro like “It’s 106 miles to Chicago, we have a full tank of gas, half a packet of cigarettes, it’s dark and we’re wearing sunglasses… HIT IT!”
Speaking of SEC task forces, the agency also announced late Friday that it had established a task force to “spearhead the agency’s efforts to enhance innovation and efficiency in its operations through the responsible use of AI.” Valerie Szczepanik, the Director of the SEC’s Office of the Strategic Hub for Innovation and Financial Technology, has been named the SEC’s Chief AI Officer and will lead the task force.
A little over 10 years ago, the SEC adopted major changes in Regulation A in an effort to increase the viability of that exemption. A recent DLA Piper blog took a look at an SEC report issued earlier this year on the past decade’s experience with the revamped Regulation A. The blog says that the results are underwhelming, to say the least:
The SEC’s report on Regulation A covers offerings from June 19, 2015 (the date when the 2015 Reg A amendments went into effect) through December 31, 2024. During that time 1,618 total offerings were filed, which requires a publicly available disclosure, but only 1,426 were qualified by the SEC. This means nearly 15% of the filings did not complete the SEC review process, with most unqualified offerings subsequently abandoned despite being publicly announced. Of the offerings that were qualified, only 817 offerings reported raising money, meaning slightly over 50% of all attempted Regulation A offerings raised nothing, despite the cost of preparing and filing a detailed disclosure document with the SEC.
The blog says that even those companies that did raise money successfully under Reg A didn’t get close to the amount of funding they sought. According to the SEC’s report, the average qualified offering sought just under $20 million but raised only $11.5 million, while the median qualified offering aimed for $10 million and raised just $2.3 million. In light of those results, it’s not surprising that, as the blog points out, most issuers prefer Reg D:
Standing back, in the aggregate companies raised $9.4 billion through Reg A offerings over nearly a decade, for an average of less than $1 billion per year. To put that number into context, in just the year 2019, companies raised $1.5 trillion through just Rule 506(b) (not Section 4(a)(2), Rule 504, Rule 506(c) or other private structures).
The SEC’s Small Business Advisory Committee has been spending a lot of time on Reg A in recent months, and the results of the past decade suggest that a lot more time and attention will need to be devoted to Reg A if the SEC really wants to make it a viable alternative.
We’ve recently posted another episode of our “Understanding Activism with John & J.T.” podcast. This time, J.T. Ho and I were joined by Evercore’s Gloria Lin. We spoke with Gloria on a range of topics relating to the current activism environment. Topics covered during this 34-minute podcast include:
– Current activism environment and key campaign themes
– Evolving activist tactics
– Timing and number of activist settlements
– Director characteristics being targeted by activists
– Key lessons that you have learned from recent proxy fights
– Influence of macroeconomic conditions on recent activist campaigns
– Potential impact of recent events in the Middle East on activism trends
– Tips for vulnerable companies on how to prepare for activism today
This podcast series is intended to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. We continue to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
That was fast. Yesterday, in response to the Working Group recommendations from mid-week, SEC Chair Paul Atkins unveiled the launch of the Commission’s “Project Crypto” during a speech to the “America First Policy Institute.” The initiative directs the SEC’s policy divisions to work with the existing Crypto Task Force led by Commissioner Hester Peirce, to “swiftly” develop proposals to implement the Working Group recommendations. But it sounds like those in the crypto ecosphere will be able to break through previous roadblocks even before final rules are on the books:
In accord with the PWG Report’s recommendations, I have directed the Commission staff to draft clear and simple rules of the road for crypto asset distributions, custody, and trading for public notice and comment. While the Commission staff works to finalize these regulations, the Commission and its staff will in the coming months consider using interpretative, exemptive, and other authorities to make sure that archaic rules and regulations do not smother innovation and entrepreneurship in America.
Here’s more detail on what Chair Atkins is thinking for some aspects of the new regulatory framework:
I have directed the Commission staff to work to develop clear guidelines that market participants can use to determine whether a crypto asset is a security or subject to an investment contract. Our goal is to help market participants to slot crypto assets into categories, such as digital collectibles, digital commodities, or stablecoins, and assess the economic realities of a transaction. This approach can allow market participants to determine, based upon clear guidelines, whether any outstanding promises or commitments of the issuer cause the crypto asset to be subject to an investment contract.
In addition, it should not be a scarlet letter to be deemed a security. We need a regulatory framework for crypto asset securities that allows these products to flourish within American markets. Many issuers will prefer the flexibility in product design that the securities laws afford, and investors will benefit from the opportunity to earn distributions, voting rights, and other features typical of securities. Projects should not be forced to establish decentralized autonomous organizations and offshore foundations or decentralize too early if this is not their desired plan of action. I am excited to see new use cases for crypto asset securities in commerce, such as the ability to participate in blockchain network consensus with tokenized equities.
Thus, for those crypto asset transactions that are subject to the securities laws, I have asked staff to propose purpose-fit disclosures, exemptions, and safe harbors, including for so-called “initial coin offerings,” “airdrops,” and network rewards. Regarding these sorts of transactions, our goal should be that issuers no longer exclude Americans from their distributions to avoid legal complexity and lawsuits,[14] but instead choose to include Americans to enjoy legal certainty and an accommodating regulatory environment. It is my view that a Cambrian explosion in innovation could occur if we stay true to this course.
The speech also indicates that the Commission is open to working with companies that want to “tokenize” securities – and engage in other yet-to-be-known types of innovation:
While the Commission is actively considering industry requests that could jumpstart innovative activity, we are also contemplating an innovation exemption that would allow registrants and non-registrants to quickly go to market with new business models and services that do not neatly fit within our existing rules and regulations. The Commission will continue to ensure that market participants adhere to certain conditions and requirements designed to achieve the policy aims of the federal securities laws.
Under my vision for an innovation exemption, innovators and visionaries will be able to immediately enter the market with new technologies and business models but will not be required to comply with incompatible or burdensome prescriptive regulatory requirements that hinder productive economic activity. Instead, they will be able to comply with certain principles-based conditions designed to achieve the core policy aims of the federal securities laws. These conditions may include, for example, a commitment to make periodic reports to the Commission, incorporate whitelisting or “verified pool” functionality, and restrict tokenized securities that do not adhere to a token standard that incorporates compliance features, such as ERC3643.[22] I encourage market participants and SEC staff alike to have an eye towards commercial viability when contemplating what various models could look like.
In his speech, Chair Atkins analogized the current need for innovation to the one facing the SEC in the 1960s, when the market transitioned from paper stock certificates to electronic DTC entries. I do wonder whether that was as polarizing at the time as crypto is now. My guess is, probably! Whatever your views on the merits of crypto becoming mainstream, you can’t argue with the fact that the market appears to be poised for some big changes right now.
The question of what Congress will fund next year is still a very open one, since our lawmakers sprinted out of Washington before making much progress on the appropriations bills. Just the same, some of the early activity can give us a sense of what type of budget the SEC will be working with, and which enforcement and rulemaking priorities will get those precious dollars.
As Meredith blogged in June, the SEC had requested that its funding level not change from last year. It’s not too surprising to see that the current subcommittee version of the House appropriations bill would actually reduce the Commission’s funding by about 7% compared to last year. What may be more interesting is the laundry list of items that the bill would “defund” (i.e., the SEC wouldn’t be able to use the appropriated funds for these items):
– SEC. 527. None of the funds made available by this Act may be used to compel a private company to make a public offering under the Securities Act of 1933 by amending the ‘‘held of record’’ definition under section 12(g)(1) of the Securities Exchange Act of 1934.
– SEC. 528. None of the funds made available by this Act may be used to implement any program that requires a national securities exchange, a national securities association, or a member of such an exchange or association to collect and provide personally identifiable information with respect to a retail market participant to meet the requirements relating to an order or a reportable event under section 242.613(c)(7) of title 17, Code of Federal Regulations, or any successor regulations thereof.
– SEC. 529. None of the funds made available by this Act may be used to review or approve the budget for the Financial Accounting Standards Board (FASB) as described in 15 U.S.C. 7219, until the FASB withdraws the Accounting Standards Update on Income Tax Disclosures issued in December 2023 (No. 2023-09).
– SEC. 530. None of the funds made available by this Act may be used to develop, promulgate, finalize, implement, or enforce rulemaking that would, directly or indirectly, create new disclosure requirements under Regulation D or lower the amount of money an issuer can raise through Regulation D.
– SEC. 531. None of the funds made available by this Act may be used to implement or enforce the final rule entitled ‘‘Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure’’ (88 Fed. Reg. 51896 (August 4, 2023)).
The tax and cybersecurity disclosure restrictions are interesting, since some companies have been wondering whether they need to worry about these rules anymore under the current regime. For cyber, it’s worth remembering that even though Commissioners Peirce and Uyeda objected to the cybersecurity disclosure rules when they were adopted, it was in part because they believed the preexisting rules and guidance already required disclosure of material cybersecurity risks and incidents. That suggests we will still need to keep principles-based disclosures in mind for these issues. Plus, the laws are still on the books (for now) and enforcement could resume after a regime change. All that said, it does seem that when it comes to obsessing over the finest, most technical disclosure points, we may get a little breathing room for the time being – especially if the spending prohibition makes it into the final appropriations bill.
A new report from Cornerstone Research shows that securities class action filing activity has held steady for the first half of this year – but the dollar values are higher and “AI washing” is showing up in more claims. Here are a few other takeaways:
– 12 cases filed in the first half of 2025 related to artificial intelligence disclosures, putting this category on track to surpass the 2024 yearly total of 15.
– Cryptocurrency-related filings are poised to increase, while COVID-19-related filings are on pace to decline sharply.
– The annualized number of SPAC-related filings is on pace to nearly match that of 2024.
– The number of filings in the Consumer Non-Cyclical sector increased by 31% in 2025 H1 relative to 2024 H2, largely driven by a surge in Biotechnology and Pharmaceutical filings.
– Mega filings accounted for the vast majority of total MDL and total DDL (91% and 83%, respectively), significantly above the 1997–2024 semiannual averages.
– The count of mega DDL filings (15) in 2025 H1 was three times the 1997–2024 semiannual average (five) and between the number of mega DDL filings in 2024 H2 (17) and 2024 H1 (10).
A report from NERA Economic Consulting reached similar conclusions, while also showing that plaintiffs remain interested in “bread & butter” claims. Here’s more detail on that one:
– A total of 108 new federal securities class action suits were filed in the first half of 2025. The bulk of these (99 cases) were standard cases containing alleged violations of Rule 10b-5, Section 11, and/or Section 12. If this pace continues, 2025 will see approximately 216 cases, a slight decline from 2024 levels.
– The electronic technology and technology services and the health technology and services sectors together accounted for 59% of filings. However, suits in the finance sector declined to 7%.
– A significant number of standard case filings included allegations related to missed earnings guidance (44%) and allegations related to misled future performance (33%).
Yesterday, the “President’s Working Group on Digital Asset Markets” – which was established by Executive Order back in January – released a 166-page, multi-agency report that is intended to provide a framework for regulatory oversight and allow more people to access “digital asset markets.”
Page 44 of the report summarizes in a handy bullet-point list all of the actions the SEC and CFTC have already taken this year on crypto issues. In addition to recommending that Congress pass legislation for a crypto regulatory framework, which would build on the legislation that was recently adopted for stablecoins, the working group recommends that the agencies coordinate together and do even more. For example, for the SEC, the report recommends that it consider using its rulemaking & exemptive authority to:
• Establish a fit-for-purpose exemption from registration under Section 5 of the Securities Act for securities distributions involving digital assets.
• Establish a time-limited safe harbor or exemption from certain securities law requirements for transactions involving digital assets that may be subject to an investment contract because they are not yet fully functional or associated with a sufficiently decentralized network to allow for progressive functionality or decentralization.
• Establish a safe harbor for certain airdrops from characterization as “sales” under Section 2(a)(3) of the Securities Act or an exemption from the corresponding registration requirements under Section 5 of the Securities Act. Consider also an exemption for distributions of digital assets by decentralized physical infrastructure (DePIN) providers in securities transactions for purposes of rewarding participation in DePIN networks, as well as distributions of certain offerings.
The report also envisions a tailored disclosure regime for digital asset issuers:
Issuers of digital asset securities, and of securities involving digital assets, should be subject to disclosure requirements that are appropriately tailored to address the novel characteristics of digital assets and blockchain technology. Digital asset trading platforms, brokers, dealers, and other CFTC registered intermediaries that make available non-security digital assets should be required to disclose any such information that the CFTC determines to be appropriate for non-security digital assets.
Further, these parties should not be subject to ongoing disclosure requirements other than those required by Congress in future legislation or by the relevant market regulator. Furthermore, any such ongoing disclosures should be fit-for-purpose and guided by publicly available information, such as open-source code, whenever possible.
The report’s other themes are summarized in this fact sheet, and SEC Chair Paul Atkins issued this statement applauding the recommendations. Buckle up!
The bitcoin treasury strategy pioneered by billionaire Michael Saylor’s MicroStrategy, which now calls itself Strategy, remains dominant: more than 70 public companies around the world currently hold over $67 billion worth of the asset. But the sheer velocity of capital deployment for crypto treasuries at large is jaw-dropping. Since April, more than 30 public companies have announced plans to adopt similar strategies, targeting about $19 billion in capital raises, according to Elliot Chun of Architect Partners, a Palo Alto-based financial advisory firm.
That’s from a Forbes article published earlier this month – so the number is higher now, and it’s hard to visit any news site that is even tangentially related to business or finance and not run into an article about the “crypto treasury” craze. (I say “crypto” here because in the time since that Forbes article was written, there have been deals that focused on currencies other than bitcoin.) This newsletter from Bloomberg’s Matt Levine explains how the “path to public” for the crypto entrepreneurs involves – what else? – SPACs:
…we talk a lot around here about small public companies that get gobbled up by crypto entrepreneurs so they can pivot to being crypto treasury companies. But this is inefficient and haphazard: If you want to take a pot of crypto public on the stock exchange, why should you have to find some defunct public biotech company, negotiate with its executives, strike a deal, lay off the biotech researchers, etc.? Why shouldn’t an investment bank just be in the business of supplying pristine public listings, so instead of pivoting some biotech/toy/liquor/whatever company to crypto, you can just start with a blank slate?
Of course banks are in this business. This business — the business of supplying a publicly listed shell company — is the SPAC business (special purpose acquisition companies).
If you’re working on these deals, you may be having déjà vu from the SPAC heyday. Lucky you! Of course, there may be a couple differences this time around. For one, you’ll need to consider the SPAC disclosure rules that went into effect last summer – with the aim to make SPAC/de-SPAC deals more akin to traditional IPOs. But there are a couple of potentially mitigating factors there:
– Some deal teams had baked in some of these requirements already as a matter of practice.
– SEC leadership has changed! I haven’t heard too much specifically on how the Staff proceeds on SPAC-related reviews under the new regime, but with the crypto angle, it wouldn’t be surprising if this falls under the directive in yesterday’s Working Group Report to encourage SEC registrants to “engage in innovative new business models.”
The other thing that adds new wrinkles is that for many of the “crypto treasury” companies, in addition to not being a traditional business in the first place, this isn’t a buy & hold strategy for the crypto. This Bloomberg article explains how the new players are “chasing yield.” That sounds complicated to explain to some investors and various regulators – maybe even to some of the company’s directors! The companies are including a whole new category of risk factors, which I imagine were fun for the first few trailblazers to draft and continue to require careful reading for each company’s circumstances.
Lastly, some people are questioning how long the “crypto treasury / SPAC” play can last. “How is the market not already saturated?” I am not sure whether that’s a distinguishing feature of this new twist, or something that makes it just like the last round, where very similar questions seemed to spark a level of FOMO that only prolonged the trend.
