SEC Official Says 'Plain English' Guidance On ICOs Is Coming

SEC Director of Corporation Finance William Hinman said the agency plans to release a "plain English" explanation of when a token sale is a security.

AccessTimeIconNov 5, 2018 at 4:07 p.m. UTC
Updated Sep 13, 2021 at 8:33 a.m. UTC
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The U.S. Securities and Exchange Commission (SEC) plans to clarify when and how cryptocurrencies may be classified as securities, its director of Corporation Finance said Monday.

Speaking at the D.C. Fintech Week conference, SEC director William Hinman said the regulatory agency intends to release "plain English" guidance for developers to refer to when planning token offerings. This guidance will help such developers determine on their own whether any potential token offering may be classified as a security or not, according to Hinman, though it's not clear when the guidance will be published.

Hinman explained at the event:

"We also will be putting out more guidance, the idea is a plain English instrument that people can look at and they'll bring together sort of my Howey-meets-Gary speech, and that analysis ... We'll elaborate on that in a very plain English way, so 'do I think I have a security offering,' look at that guidance and you should be able to sort things out."

If developers are still uncertain about whether their token offerings are securities or not, they can get in touch with the SEC's new FinHub, which is aimed at providing rapid feedback on questions about securities and security offerings, he said.

"Once you determine whether you have a security, we're going to have in that guidance, 'how do I go about registering' and 'how do I go about doing an exempt offering,'" Hinman added.

The issues the SEC is examining include accounting, custody and token valuation, he went on to explain. Some of the draft registration statements sent to the regulator so far have similarly touched on these concerns.

"I think we can try to bring that together and share that ... we want to share that a little bit more transparently," he said.

The guidance will also address secondary market transactions, as part of an effort to give developers and entrepreneurs clarity on how the SEC might look at tokens post-initial offering.

When asked about how the SEC might classify a token sale as a securities offering, Hinman elaborated by noting that the agency would be looking at factors such as the expectation of a return on investment.

"If someone's offering an instrument for money or other consideration to a third party, and that third party expects the offerer to generate a return or so something that will increase the value of the coin or token or whatever they want to call it, and there's that expectation of return, we're generally going to see that as a securities offering," he said.

Back in July 2017, the SEC published its report on the DAO, the now-defunct, ethereum-based funding vehicle that featured its own token that the agency later said was considered a security. At the time, the SEC notably declared that securities laws could apply to some token sales.

Hinman himself declared in June of this year that, in his view, ether – the cryptocurrency of the ethereum network – isn't a security.

William Hinman image from Yahoo! All Markets Summit / YouTube

Aaron Stanley contributed reporting. 


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