In a Q&A session on November 5, 2018 at the D.C. Fintech Week Conference, the U.S. Securities and Exchange Commission (SEC) Director of the Division of Corporation Finance, William Hinman, announced that the SEC plans to issue guidance on how to conduct token offerings in a manner compliant with U.S. securities laws. Although he did not provide a timeline for the release of the guidance, Director Hinman stated that the primary purpose of the guidance would be to provide an easily understandable resource for developers to determine whether their token is a security under federal securities laws and, if so, how to conduct a registered or exempt offering.
Director Hinman also stated that the guidance will examine accounting, custody and valuation as they relate to token offerings. The guidance will also address secondary market transactions to clarify how the SEC might treat tokens after an initial offering.
The guidance will provide clarity regarding the classification of certain tokens and will build upon the existing guidance the SEC has released. Director Hinman noted that the guidance will incorporate the analysis he discussed in his June 14, 2018 speech “Digital Asset Transactions: When Howey Met Gary (Plastic),”1 which focused largely on the Supreme Court’s definition of an investment contract in SEC v. W.J. Howey Co.2 and expanded upon the SEC’s initial application of Howey to token offerings in the DAO Report3 on July 25, 2017.
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1 See Seward & Kissel Client Alert, “SEC Provides Helpful Insights on Treatment of Token Offerings,” June 18, 2018, https://www.sewkis.com/publications/sec-provides-helpful-insights-on-treatment-of-token-offerings/.
2 SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
3 See Seward & Kissel Client Alert, “SEC Speaks Out on ICOs, Cautions That Some May Involve Offering of Unregistered Securities,” July 27, 2017, https://www.sewkis.com/publications/sec-speaks-out-on-icos-cautions-that-some-may-involve-offering-of-unregistered-securities/.
