I’m attorney Laura Anthony founding partner of Legal & Compliance, a full service corporate,
securities, and business transactions law firm.
Today is the continuation in a LawCast series talking about the latest guidance from the
SEC on cryptocurrencies as a security.
On June 14, 2018, William Hinman, the Director of the SEC Division of Corporation Finance,
referred to as Corp Fin, in which gave a speech at Yahoo Finance’s All Markets Summit in
which he made two huge revelations for the crypto marketplace.
The first is that he believes a cryptocurrency issued in a securities offering could later
be purchased and sold in transactions not subject to the securities laws.
The second is that Ether and Bitcoin are not currently securities.
Also, for the first time, Hinman gives the marketplace guidance on how to structure a
token or coin such that it might not be a security.
Prior to Mr. Hinman’s comments, the Division of Corporation Finance, issued comments to
our clients, which comment letters gave an indication of the progression of the SEC’s
thinking.
In particular, in an earlier letter the SEC comment was in relevant part as follows: We
note that you will accept Bitcoin, Ether, Litecoin or Bitcoin Cash as payment for your
common stock.
Please disclose the mechanics of the transaction.
For example, explain the following: whether the digital assets are securities and, where
you have determined they are, how you will structure each individual transaction so that
you are in compliance with the federal securities laws; disclose how long the company would
typically hold these digital assets, some of which may be securities, before converting
to U.S. dollars; include risk factor disclosure discussing the impact of holding such assets
and/or accepting this form of payment, including price volatility and liquidity risks as well
as risks related to the fragmentation, potential for manipulation, and general lack of regulation
underlying these digital asset markets; and disclose how you will hold the digital assets
that you may receive in this offering as payment in exchange for shares of your common stock.
If you intend to act as custodian of these digital assets, some of which may be securities,
please tell us whether you intend to register as a custodian with the state or federal regulators
and the nature of the registration.
The comment letter included many other points on cybersecurity, price volatility, risk factors
and other issues not related to whether the Bitcoin or Ether were a security.
In a more recent comment letter for a different client, also offering tokens in a Regulation
A offering and accepting Bitcoin and Ether as payment, the SEC did not issue any questions
as to whether the Bitcoin or Ether were a security, but did include substantially the
same questions related to cybersecurity, price volatility, risk factors and other business
points.
The SEC Division of Corporation Finance is pragmatic in its approach and despite frustrations
at times, would not allow Division Directors or its Division Director to make public statements
and then allow its staff to issue comments or take positions that were in direct contravention
to those statements.
Keep in mind also that the SEC no-action letters technically do not set precedence or have
any legal bearing outside of the parties to the letter, but they are regularly relied
upon by the SEC and practitioners for guidance.
Director Hinman’s speech is the same thing.
It can be relied upon for guidance.
I’m securities attorney Laura Anthony, founding partner of Legal & Compliance, and producer
of LawCast.
Should you have any questions about today’s topic, please visit SecuritiesLawBlog.com
and LawCast.com, or contact me directly.
Inquiries of a technical nature are always encouraged.