Blockchain, Digital Assets, Digital Currency, Regulatory Guidance, SEC, Tokens On April 3, 2019, the Securities and Exchange Commission (“SEC”) released the “Framework for ‘Investment Contract’ Analysis of Digital Assets” (the “Framework”). The general objective of regulation is not to hinder technology or stifle innovation, but to create … – Securities and Exchange Commission (SEC): Regulates U.S. capital markets and enforces … The new document is titled the “Framework for ‘Investment Contract’ Analysis of Digital Assets” and was compiled by Bill Hinman, director of the SEC’s Division of Corporation Finance, and Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation. The Court created a three-part test — the now well-known “Howey test,” where it defined an “investment contract” as an (1) investment of money (2) in a common enterprise,with (3) an expectation of profits solely from the efforts of the promoter or a third party. • In the U.S., many federal authorities are engaging. Gary Gensler, the former CFTC Chairman known for his tough approach to regulation, is rumo Ired to be the Biden administration’s choice to head the U.S. Securities and Exchange Commission (SEC). (5) Most digital assets (among those existing as of now, in early 2019) will be classified as securities. Here’s 6 pages on what the SEC guidance means! Blockchain and distributed ledger technology can catalyze a wide range of innovation. The Framework describes the factors used by SEC Staff for assessing whether digital assets are "investment contracts" subject to federal securities laws; the No Action letter applies those factors. The bottom line is that it’s likely that the reasoning we see in the Framework will drive SEC and court decisions going forward. This is a distinct point, and one likely to require its own attention: Aside from whether APs planned or made managerial efforts, did purchasers expect APs to make managerial efforts? It merits more than a footnote to point out that the Framework “is not a statement of the [SEC];” does not constitute a rule or regulation; and, “like other staff guidance, is not binding” on the SEC. This factor includes two main concepts itself: efforts, and others. STAY CONNECTED Framework for ‘Investment Contract’ Analysis of Digital Assets, Blockchain and distributed ledger technology can catalyze a wide range of innovation, like other staff guidance, is not binding, Analysis: Interest in Cryptocurrencies is “Surprisingly” High. By now, you’ve probably read (and read about) the SEC digital assets framework released yesterday. The U.S. Securities and Exchange Commission's recently released framework for determining when digital assets should be considered securities … This is the “main issue,” the authors of the Framework point out. Even if no registration is required, activities involving digital assets that are securities may still be subject to the Commission's regulation and oversight. Notably, the SEC digital assets framework doesn't equate to the commission's official view on anything. Framework for “Investment Contract” Analysis of Digital Assets1. Profits derived from the efforts of others can include appreciation of the asset and its sale at a gain in a secondary market — and this is often exactly what a digital-asset purchaser has in mind when participating in an ICO. As others have said, the SEC’s Framework for “Investment Contract” Analysis of Digital Assets (the “Framework”) doesn’t offer a ton of new info, but still it feels like a step in the right direction. The Framework has only two sentences (and a footnote) to say about the “common enterprise” element. Is bitcoin rat poison or a castle in the air? If the Ambrosus token is offered generally, versus being targeted for sale to companies likely to have a need for supply-chain management, that would weigh in favor of a determination that the sale of Ambrosus meets the “reasonable expectation of profits” element. In fact, it’s hard to imagine how a sale of a digital asset would not satisfy the “investment of money” element, and it therefore makes sense that, when facing a lawsuit or enforcement action, digital-asset developers often concede this point (see, for example, a court opinion from a lawsuit involving ATB Coin, where the defendants argued that ATB Coin was not a security, but conceded that the sale of the coins involved an “investment of money”). Profits can be, among other things, capital appreciation resulting from the development of the initial investment or business enterprise or a participation in earnings resulting from the use of purchasers' funds. Even if no registration is required, activities involving digital assets that are securities may still be subject to the Commission's regulation and oversight. 1 Twitter 2 Facebook 3RSS 4YouTube Digital assets marketed to emphasize functionality, versus potential for increased market value. The framework is not intended to be an exhaustive overview of the law; rather, it is a tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale … are contributing to the regulatory framework for digital assets. In particular, assets that currently can be redeemed for goods or services. Those questions are of course related (and the existence of efforts can of course support an expectation of efforts) but are distinct. If you are considering an Initial Coin Offering, sometimes referred to as an “ICO,” or otherwise engaging in the offer, sale, or distribution of a digital asset, you need to consider whether the U.S. federal securities laws … The SEC emphasized that this study focused exclusively on non-government or private crypto assets and not on Pakistan’s central bank digital currencies (CBDC). The framework is not intended to be an exhaustive overview of the law, but rather, an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset. Contemporary interest in the Howey test has recently been stoked as analysts, advocates and participants in the market for digital assets have anticipated it would determine whether these assets constitute securities under U.S. law and therefore are subject to, for example, registration requirements when sold to the public in an “ICO” (initial coin offering). 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