On Tuesday, March 19, the Securities and Exchange Commission issued joint guidance with the Commodity Futures Trading Commission aimed at providing clarity about how the securities laws apply to digital assets. The guidance is a welcome development and a marked improvement from the Gensler days. It acknowledges that the agency’s “regulation by enforcement” campaign under Chair Gensler had muddied compliance obligations and stifled the industry, addressing industry concerns about unclear compliance obligations.
On Tuesday, March 19, the Securities and Exchange Commission and the Commodity Futures Trading Commission issued joint guidance intended to provide clarity about how the securities laws apply to digital assets. The guidance is a welcome development and a marked improvement from the Gensler days, and it acknowledges that the agency’s regulation by enforcement campaign under Chair Gary Gensler had muddied compliance obligations and stifled the crypto industry, addressing industry concerns about unclear compliance obligations.
The overall tone surrounding the guidance is analytical and cautiously critical, and the guidance has been described as finally providing some clarity while still leaving significant issues unresolved, including the SEC’s articulation of the Howey test for “investment contract” securities. The guidance is silent on whether an investment contract requires contractual obligations, and most digital assets are not investment contracts because they are not contracts. Observers said the guidance stops short of the full course correction the crypto industry needs.
On March 19, the Securities and Exchange Commission and the Commodity Futures Trading Commission issued joint guidance intended to provide clarity about how the securities laws apply to digital assets. The guidance’s biggest shortcoming is the SEC’s articulation of the Howey test for “investment contract” securities. The guidance states most digital assets are not investment contracts because they are not contracts. The guidance notes that a digital asset can be the subject of an investment contract but may still be sold separately from that contract without implicating the securities laws.
The SEC’s description says an investment contract involves an investment of money in a common enterprise with representations or promises that the issuer or developer will undertake essential managerial efforts, leading purchasers to reasonably expect to derive profits. The guidance explains that an investment contract can travel with a digital asset, at least temporarily, when the facts and circumstances show the digital-asset developer induced an investment of money in a common enterprise with representations or promises to undertake essential managerial efforts that lead purchasers to reasonably expect to derive profits. The SEC’s new guidance is silent about whether an investment contract requires explicit contractual obligations, and the guidance describes an investment contract as a contract — an express or implied agreement between the issuer and investor under which the issuer will deliver ongoing profits in return for the purchaser’s investment. Observers said the guidance stops short of the full course correction the crypto industry needs.
The remaining criticisms of the March 19 joint guidance focus on its treatment of the Howey test and unresolved legal questions. The guidance identifies the SEC’s articulation of the Howey test for “investment contract” securities as its biggest shortcoming and states that most digital assets are not investment contracts because they are not contracts. The guidance also explains that a digital asset can be the subject of an investment contract while still being sold separately from that contract without necessarily implicating the securities laws. The guidance is silent about whether an investment contract requires explicit contractual obligations.
Observers note that the guidance stops short of the full course correction the crypto industry needs and that critics describe the overall tone as analytical and cautiously critical. In suits brought by Chair Gensler, crypto companies vigorously defended their interpretation of securities law. Coverage has described the guidance as finally providing some clarity while still leaving significant issues unresolved. That gap between the guidance and complete legal clarity remains a central criticism.
