We’re often asked whether that policy, articulated mid-last year by Director of the Division of Corporation Finance William Hinman, truly represents the policy of the Commission or whether it’s just the opinion of SEC staff. So, a few months ago we worked with Rep. Ted Budd to send a letter co-signed by several colleagues to Chairman Clayton asking whether he agreed with Hinman’s approach. Now the Chairman has responded:
Your letter also asks whether I agree with certain statements concerning digital tokens in Director Hinman’s June 2018 speech. I agree that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument. A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition. I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.
We’re gratified to see that the SEC’s thoughtful approach to applying the Howey test to cryptocurrency comes from the top.
*The headline of this post has been changed from “SEC Chairman Clayton just confirmed Commission staff analysis that Ethereum (and cryptos like it) are not securities.” to “SEC Chairman Clayton just confirmed Commission staff analysis that found Ethereum (and cryptos like it) are not securities.”
A direct download of this Chairman Clayton’s response is available here.