The US Securities and Exchange Commission completed a crypto regulation vote without holding a public meeting, days after postponing it at the last minute. The SEC published its “Regulation Crypto Assets” proposal on Aug. 18, potentially allowing registration exemptions for token sales of up to $75 million.
According to US journalist Eleanor Terrett, the commissioners voted separately through a process known as a “seriatim” vote. Voting documents were circulated among the commissioners, although the SEC did not disclose whether votes were submitted electronically or physically at its headquarters.
The vote was originally scheduled for Aug. 14 as an open meeting broadcast to the public. That format would have allowed observers to see how each commissioner voted.
The SEC said it canceled the meeting because of an “unforeseen scheduling issue.” It has not explained why it switched to a non-public voting process only a few days later.
SEC proposes new framework for token sales
The US Securities and Exchange Commission proposed two new registration exemptions for token sales. Regulation Crypto Assets aims to establish a tailored offering framework for investment contracts involving crypto assets.
According to the SEC’s Aug. 18 announcement, projects could raise up to $5 million under the first exemption. The second exemption would allow offerings of up to $75 million during a 12-month period.
The proposed rules have not taken effect. The public comment period will remain open for 60 days after the proposal appears in the Federal Register.
SEC proposes a $5 million startup exemption
The first model, called the “startup exemption,” would remain available for a period of up to four years. A project could conduct token sales or related distributions worth up to $5 million during that period.
The exemption could only be used once. An issuer and its affiliates could not begin another four-year period for the same crypto asset or a substantially similar asset.
Projects seeking to use this pathway would have to submit a notice called Form NOR before beginning a sale. The issuer could be a company, an individual or a group of people.
Projects would also have to provide investors with free and publicly accessible information. The disclosures would cover the project’s management, token features, development plans, offering terms, conflicts of interest and material risks.
Issuers would need to update information after material changes. Projects would also have to file a transition report with the SEC by the end of the exemption period.
Large token sales could reach $75 million
Under the SEC proposal, the second model would contain two tiers similar to the existing Regulation A framework. Tier 1 would permit offerings of up to $20 million during a 12-month period.
The Tier 2 limit would reach $75 million over the same period. Unlike the startup exemption, this pathway would only be available to issuers established as legal entities.
Issuers would have to submit an offering statement called Form 1-CRYPTO before starting a sale. The offering could proceed after the SEC qualifies the document.
Both tiers would require financial statements and ongoing reports. Tier 1 financial statements would generally not require an independent audit.
Tier 2 issuers would have to provide independently audited financial statements. Projects would also submit annual, semiannual and current reports covering certain material developments.
Which tokens could qualify for the safe harbor?
The proposal includes a conditional safe harbor that could allow certain crypto assets to cease being subject to an investment contract. The project team would first need to complete or permanently discontinue the essential managerial and development efforts promised to investors.
The issuer could not make new promises to perform managerial work related to the token. A project that believed it had met these conditions would file a transition report called Form TR.
The report would explain the work completed by the project and how it satisfied the safe harbor conditions. If those conditions were met, the relevant investment contract would be deemed to have ended.
The crypto asset would then no longer be treated as subject to that investment contract under US federal securities laws. The safe harbor would not create an automatic or unlimited securities exemption for every token.
The SEC could challenge an issuer if it determined that the project made false statements or failed to satisfy the required conditions. Federal antifraud provisions would also continue to apply.
Token projects could return to the US
If adopted, Regulation Crypto Assets would establish the first US offering framework designed specifically for crypto projects. Projects could use one of two pathways based on the amount of capital they intended to raise, instead of completing full securities registration.
SEC Chair Paul Atkins said the proposal would give entrepreneurs clearer ways to raise capital under federal securities laws. The agency also expects the framework to reduce incentives for projects to establish their operations outside the United States.
The SEC released the proposal after postponing last week’s meeting because of what it called an unforeseen scheduling issue. Projects cannot yet rely on either exemption to conduct token sales.
A 60-day public comment period will begin after the proposal appears in the Federal Register. The SEC may then revise the proposal, adopt final rules or withdraw it.
