After almost 6 months of hard work the U.S. Securities and Exchange Commission (SEC) has finally published the new regulatory guidance those broker-dealers looking to release new cryptocurrency tokens having been waiting for.
William Hinman, the SEC’s Director of Corporation Finance, first mentioned the SEC was developing these new guidelines in November 2018 and his comments have repeatedly been confirmed by a number of senior colleagues since.
The guidance focusses on explaining how and when these cryptocurrencies will be recognised as being able to meet a securities classification and the SEC feel providing this type of direction in “plain English” will direction would help those issuing tokens work out whether or not their tokens will officially qualify as a security offering.
To make it even easier for issuers the guidance includes examples of the types of tokens that will be classified as securities and those that won’t.
In terms of the framework itself the guidance outlines several factors a token issuer has to evaluate before deciding whether their offering will qualify as a security and these include:
- Expectation of profit
- Whether a single or central group of entities will be responsible for defined tasks within the network
- Whether a group is creating or supporting a market for a digital asset
- How developed the network is
- What the tokens’ use cases might be
- Whether there is a correlation between a token’s purchase price and its market price
The guidance also asks issuers to look at past token offerings and evaluate whether those tokens should have been registered as securities or whether “digital assets” that were previously sold as securities need to be re-evaluated offers a number of criteria to use to structure a re-evaluation.
However while these new guidelines offer a little more clarity than has previously existed, it’s important to remember it isn’t a legally binding document so should be used solely as guidance.
As lawyers who specialise in resolving the fall-out from fraudulent crypto trading deals and ICO (Initial Coin Offerings) scams we think there are other questions that need to be addressed most particularly why the SEC hasn’t taken this opportunity to tackle the issue of custody for broker-dealers holding cryptocurrencies.
As we stand broker-dealers may be able to verify that the cryptocurrencies in their various wallets are theirs but there is currently no way to prove no one else has access to those wallets which surely only increases the potential for theft should a determined criminal be able to obtain access?
If you have lost money as a result of a cryptocurrency trading scam or a fraudulent ICO and would like to find out how best to recover your losses, please call us today on 020 7792 5649 or email us at This email address is being protected from spambots. You need JavaScript enabled to view it..
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