[Federal Register Volume 91, Number 161 (Friday, August 21, 2026)]
[Proposed Rules]
[Pages 54510-54655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-17183]
[[Page 54509]]
Vol. 91
Friday,
No. 161
August 21, 2026
Part IV
Securities and Exchange Commission
-----------------------------------------------------------------------
17 Part 200, 201, 228, et al.
Regulation Crypto Assets; Proposed Rule
Federal Register / Vol. 91, No. 161 / Friday, August 21, 2026 /
Proposed Rules
[[Page 54510]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200, 201, 228, 230, 232, and 239
[Release Nos. 33-11434; 34-106150; File No. S7-2026-27]
RIN 3235-AN38
Regulation Crypto Assets
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing new rules to create a tailored offering regime for certain
investment contracts involving crypto assets. The proposed offering
regime is intended to facilitate capital formation and accommodate
innovation within the crypto asset markets while, at the same time,
ensuring that investors are adequately protected and provided with the
information they need to make informed investment decisions. The
proposed rules would be set forth in a new regulation titled
``Regulation Crypto Assets'' and would include two exemptions from the
registration requirements of section 5 of the Securities Act of 1933.
The first exemption would permit offerings of up to $5 million during a
four-year period. The second exemption would permit offerings of up to
$75 million during each 12-month period. Under both exemptions, issuers
would be required to make certain principles-based narrative
disclosures available to their investors. In addition, issuers under
the second exemption would be required to provide financial statements
and would be subject to ongoing reporting requirements. Issuers that
rely on these exemptions would remain subject to the antifraud and
antimanipulation provisions of the Federal securities laws. The
proposed rules also would include a conditional safe harbor from the
term ``investment contract'' in the definitions of ``security'' in the
Securities Act of 1933 and the Securities Exchange Act of 1934. If the
conditions of that proposed safe harbor are satisfied, then a crypto
asset would be deemed not to be subject to an investment contract for
purposes of those definitions of ``security.''
DATES: This release was published in the Federal Register on August 21,
2026. Comments should be received on or before October 20, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://sec.gov/comments/s7-2026-27/regulation-crypto-assets).
Send an email to [email protected]. Please include
File Number S7-2026-27 on the subject line.
Paper Comments
Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-2026-27. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
submitted comments on its website (https://sec.gov/rules-regulations/public-comments/s7-2026-27). Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. The Commission may redact in part or
withhold entirely from publication submitted material that is obscene
or subject to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website (https://sec.gov/rules-regulations/2026/08/s7-2026-27).
FOR FURTHER INFORMATION CONTACT: Patrick Faller, Special Counsel,
Office of Chief Counsel, at (202) 551-3500, John Fieldsend, Special
Counsel, Office of Rulemaking, at (202) 551-3430, or Irene Paik,
Attorney-Advisor, Office of Crypto Assets, at (202) 551-2076, Division
of Corporation Finance, U.S. Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: We are proposing amendments to or proposing
to add the following rules and forms: \1\
---------------------------------------------------------------------------
\1\ The text of the forms listed in this table are located in
the appendices of this release.
---------------------------------------------------------------------------
[[Page 54511]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.039
Table of Contents
I. Introduction
A. The Commission's Regulatory Approach to Crypto Assets
1. Approach Before 2025
---------------------------------------------------------------------------
\2\ 15 U.S.C. 77a et seq.
---------------------------------------------------------------------------
2. Developments Beginning in 2025
B. Written Input Provided to the Crypto Task Force
1. Security Status
2. Scoping Out
3. Public Offerings
4. Safe Harbor From Registration
C. Summary of the Proposed Rules
II. Discussion of Proposed Rules
A. Regulation Crypto Assets and General Rules (Subpart A, Rules
100 Through 104)
1. Definitions (Rule 100)
2. General Provisions (Rule 101)
3. Inflation Adjustment for Offering Limits (Rule 102)
4. Disclosure Requirements (Rule 103)
5. Disqualification (Rule 104)
B. Startup Exemption (Subpart B, Rule 200)
1. Background
2. Proposed Rule
C. Fundraising Exemption (Subpart C, Rules 300 Through 307)
1. Background
2. Proposed Rules
D. Investment Contract Safe Harbor (Subpart D, Rule 400)
1. Background
2. Proposed Rules
E. Preemption of State Registration and Qualification
Requirements (Definition of ``Qualified Purchaser'' in Subpart E,
Rule 500)
1. Background
2. Proposed Rule
III. Other Matters
IV. Economic Analysis
A. Economic Baseline
1. Current Methods of Raising Up to $75 Million in Capital
2. Affected Issuers
3. Disclosures Provided by Current Issuers of Crypto Asset-
Related Offerings
4. Affected Financial Intermediaries
B. Economic Effects of Individual Provisions
1. Benefits and Costs of Proposed Regulation Crypto Assets
2. Benefits and Costs of the Proposed Startup Exemption
3. Benefits and Costs of the Proposed Fundraising Exemption
4. Benefits and Costs of the Proposed Investment Contract Safe
Harbor
5. Benefits and Costs of the Proposed Preemption of State
Registration and Qualification Requirements
C. Effects on Efficiency, Competition, and Capital Formation
1. Effects on Efficiency
2. Effects on Competition
3. Effects on Capital Formation
D. Reasonable Alternatives
E. Request for Comment
V. Paperwork Reduction Act
A. Background
B. Estimate of Issuers
1. Startup Exemption
2. Fundraising Exemption
3. Investment Contract Safe Harbor
C. Estimate of Issuer Burdens
1. Startup Exemption
2. Fundraising Exemption
3. Form TR
4. Form ID
D. Collections of Information Are Mandatory
E. Confidentiality
F. Retention Period of Recordkeeping Requirements
G. Request for Comment
VI. Present Values and Annualized Values of Monetized Benefits and
Costs
VII. Congressional Review Act
VIII. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Rules
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
G. Request for Comment
Statutory Authority
I. Introduction
We are proposing new rules to create a tailored offering regime for
certain investment contracts involving crypto assets.\3\ We refer to
those investment contracts throughout this release as ``covered
investment contracts.'' \4\ The proposed offering regime is intended to
facilitate capital formation and accommodate innovation within the
crypto asset markets while, at the same
[[Page 54512]]
time, ensuring that investors are adequately protected and provided
with the information they need to make informed investment decisions.
---------------------------------------------------------------------------
\3\ Under the proposed rules, the term ``crypto asset'' would be
defined to mean any digital representation of value that is recorded
on a cryptographically-secured distributed ledger. See proposed 17
CFR 228.100. The term ``distributed ledger'' generally refers to
databases that maintain information across a network of computers in
a decentralized or distributed manner. These networks commonly use
cryptographic protocols to ensure data integrity and consensus
mechanisms to ensure data congruity. Blockchains are one type of
distributed ledger, and they are often used to issue and transfer
ownership of crypto assets.
\4\ Under the proposed rules, the term ``covered investment
contract'' would be defined to mean a contract, transaction, or
scheme that constitutes an investment contract; provided that the
investment contract must meet the following requirements: (1) a
crypto asset is subject to the investment contract; (2) such crypto
asset is not a security; and (3) no asset other than such crypto
asset (including any security or non-security asset) is subject to
the investment contract. See id.
---------------------------------------------------------------------------
Since the advent of Bitcoin in 2008,\5\ the crypto asset markets
have grown significantly.\6\ Although still only a fraction of the size
of the global debt and equity markets,\7\ the rapid rise in the market
capitalization of crypto assets is one of several indicators of the
growing importance of crypto assets to the global financial system.
---------------------------------------------------------------------------
\5\ See Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic
Cash System (Oct. 31, 2008), available at https://bitcoin.org/bitcoin.pdf.
\6\ See President's Working Group on Digital Asset Markets,
Strengthening American Leadership in Digital Financial Technology 16
(July 30, 2025), available at https://whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf (``President's
Working Group Report'').
\7\ See Securities Industry and Financial Markets Association,
2025 Capital Markets Fact Book 8 (July 28, 2025), available at
https://sifma.org/wp-content/uploads/2024/07/2025-SIFMA-Capital-Markets-Factbook.pdf (noting that in 2024, the global fixed income
markets outstanding was $145.1 trillion and the global equity market
capitalization was $126.7 trillion).
---------------------------------------------------------------------------
Despite this growth, the Commission has not to date adapted its
rules to address the unique aspects of the crypto asset markets.
Instead, the Commission generally has looked to the test developed by
the Supreme Court of the United States in SEC v. W.J. Howey Co.\8\
(known as the ``Howey test'' \9\) to determine whether crypto assets,
and transactions involving such assets, fall within the purview of the
Federal securities laws. If the Federal securities laws applied, an
issuer was required to comply with existing requirements.
---------------------------------------------------------------------------
\8\ 328 U.S. 293 (1946).
\9\ The Howey test is discussed in more detail in section I.A.1
below. See also Application of the Federal Securities Laws to
Certain Types of Crypto Assets and Certain Transactions Involving
Crypto Assets, Release No. 33-11412 (Mar. 17, 2026) [91 FR 13714
(Mar. 23, 2026)] (``2026 Interpretation'').
---------------------------------------------------------------------------
Although relying on familiar and well-established legal standards
in lieu of tailored rules has some merit, this approach has two primary
drawbacks in the context of crypto assets. First, it can be difficult
to apply the Howey test to crypto assets and transactions involving
crypto assets. Second, the Commission's existing rules are not fully
``fit-for-purpose'' with respect to covered investment contract
offerings. Both of these issues stem from the unique attributes of
crypto assets. For example, although crypto assets may be subject to
investment contracts (and, therefore, the Federal securities laws) when
first offered or sold, the crypto assets may subsequently cease to be
subject to investment contracts (at which point the Federal securities
laws no longer would apply).\10\ The Commission's existing rules
generally do not contemplate or facilitate this type of evolution.\11\
Further, many of the Commission's existing rules require issuers to
provide disclosures that may not be relevant to investors in covered
investment contract offerings. At the same time, those rules often do
not elicit other types of disclosures that are likely to be material to
such investors. In addition, the value of a crypto asset (and the
success of the related network or application) often depends on the
extent to which the crypto asset is widely held and used--that is, the
crypto asset's ``network effects.'' \12\ The Commission's existing
exemptions have features that may impede such network effects. For
example, securities issued pursuant to the Commission's existing
exemptions may be restricted securities \13\ or otherwise subject to
resale restrictions.\14\ Those exemptions also may limit the extent to
which an issuer may sell securities to retail investors,\15\ which
could result in concentrated (rather than widespread) holdings.
---------------------------------------------------------------------------
\10\ See id.
\11\ The fundamental nature of most non-crypto asset financial
instruments does not change over time and, therefore, they either
are permanently within or outside the scope of the Federal
securities laws.
\12\ See 2026 Interpretation at n.52 (stating that the term
```network effects' refers to the phenomenon where the value, use,
and security of a crypto system increase as more users participate
and interact with the crypto system'').
\13\ See, e.g., 17 CFR 230.144(a)(3)(ii) (providing that the
term ``restricted securities'' incudes ``[s]ecurities acquired from
the issuer that are subject to the resale limitations of Sec.
230.502(d) under Regulation D'').
\14\ See, e.g., 17 CFR 227.501 (imposing a one-year restriction
on resales of securities issued pursuant to Regulation
Crowdfunding).
\15\ See, e.g., 17 CFR 230.506(c)(2)(i) (requiring that all
purchasers of securities sold in any offering under the exemption to
be ``accredited investors,'' as defined in 17 CFR 230.501(a)).
---------------------------------------------------------------------------
Without fit-for-purpose rules, existing regulatory requirements,
many of which were adopted well before the proliferation of crypto
assets, could complicate an issuer's transaction planning and, in turn,
impede capital formation and innovation in the crypto asset markets.
Furthermore, in response to these regulatory challenges, some issuers
may choose to conduct their crypto asset transactions offshore,
limiting investment options (and, therefore, the ability to diversify)
for U.S. investors or exposing them to additional risks from
participating in markets with less robust investor protections.
The Commission recently took steps to address these issues by
clarifying its views on the application of the Howey test to crypto
assets and transactions involving crypto assets.\16\ These proposed
rules are intended to complement those efforts. Similar to the
Commission's historical approach of creating bespoke frameworks for
certain other unique asset classes (such as asset-backed securities
\17\ and real estate investment trusts \18\), the proposed rules would
establish an offering framework specifically tailored to covered
investment contracts, thereby reducing compliance costs for issuers and
delays caused by regulatory uncertainty, while, at the same time,
ensuring that investors are adequately protected and well-informed.\19\
---------------------------------------------------------------------------
\16\ See 2026 Interpretation.
\17\ See, e.g., Regulation AB, 17 CFR 229.1100 through 17 CFR
229.1125.
\18\ See, e.g., 17 CFR 239.18.
\19\ While the Commission's rules for asset-backed securities
and real estate investment trusts provide a framework for conducting
registered offerings, the proposed offering framework for covered
investment contracts would provide exemptions from registration and
a conditional safe harbor. This difference reflects the fact that
many crypto asset projects are intended to develop in such a way
that the related crypto assets subsequently will cease to be subject
to investment contracts. See section II.B.1 (discussing the need for
the proposed startup exemption). There may be other securities
involving crypto assets, such as digital securities, that are not
expected to undergo such evolution and that may be more suitable for
registration. We are not, at this time, proposing to amend our rules
and forms governing registered offerings to address these other
matters related to crypto assets.
---------------------------------------------------------------------------
A. The Commission's Regulatory Approach to Crypto Assets
1. Approach Before 2025
Although the Commission and its staff began engaging with crypto
assets as early as 2013,\20\ the Commission first issued an analytical
framework for applying the Federal securities laws to crypto assets and
crypto asset-related transactions in 2017. At that time, there was an
increased interest in capital raising transactions involving crypto
assets often referred to as ``initial coin offerings'' or ``ICOs.''
\21\ One such ICO
[[Page 54513]]
involved the issuance of crypto assets called ``DAO Tokens'' by an
unincorporated organization named ``The DAO.'' \22\ In July 2017, the
Commission issued the ``DAO Report,'' which was a report of an
investigation pursuant to section 21(a) of the Securities Exchange Act
of 1934 (``Exchange Act'') \23\ with respect to the ICO of DAO
Tokens.\24\ In the DAO Report, the Commission found that the ICO
constituted an offer and sale of securities subject to the Federal
securities laws because, pursuant to the Howey test, the DAO Tokens
were being offered and sold as ``investment contracts.'' \25\
---------------------------------------------------------------------------
\20\ The first registration statement for the offer and sale of
a crypto asset exchange-traded product was filed with the Commission
in 2013. See Form S-1 Registration Statement filed with the
Commission on July 1, 2013, https://sec.gov/Archives/edgar/data/1579346/000119312513279830/d562329ds1.htm.
\21\ Generally, ICOs involve the issuance of crypto assets in
exchange for cash or other consideration intended to fund the
development of crypto asset networks and applications. ICOs often
proceed as follows: A developer (or a team of developers) publishes
a ``whitepaper'' that describes the technical specifications and
other relevant details of a crypto asset project. See infra note 156
for a discussion of the term ``whitepaper.'' At the time of the ICO,
development of the project is in the early stages or has not yet
begun and, therefore, the developer is seeking to raise capital to
fund development of the project. Based on the information provided
in the whitepaper, investors transfer cash or other consideration to
the developer in exchange for crypto assets (or the promise of a
future issuance of such assets, once the project is sufficiently
complete). The ICO participants (both the developers and investors)
contemplate that the project eventually will be completed, at which
time the investors may, among other things, transfer their crypto
assets (sometimes referred to as ``tokens'') or use them to access
certain features in the crypto asset network or application.
\22\ See Report of Investigation Pursuant to Section 21(a) of
the Securities Exchange Act of 1934: The DAO, Release No. 34-81207
(July 25, 2017) (``DAO Report'').
\23\ 15 U.S.C. 78a et seq.
\24\ See DAO Report.
\25\ See id. at 11-15. The definition of ``security'' in both
the Securities Act and the Exchange Act enumerates several
instrument types, including ``investment contract.'' See 15 U.S.C.
77b(a)(1); 15 U.S.C. 78c(a)(10). The definitions are ``virtually
identical'' in the Securities Act and Exchange Act and are treated
by the courts as identical in ``decisions dealing with the scope of
the term.'' Landreth Timber Co. v. Landreth, 471 U.S. 681, 686 n.1
(1985). Under the Howey test, the term ``investment contract'' means
any contract, transaction, or scheme whereby a person invests money
in a common enterprise and reasonably expects profits to be derived
from the essential managerial efforts of others. Howey, 328 U.S. at
298-99.
---------------------------------------------------------------------------
In the years following the DAO Report, the Commission and its staff
continued to address ICOs (and crypto assets in general) on an ad hoc
basis.\26\ Consistent with the DAO Report, the Commission's general
approach was to apply the Howey test to determine whether a crypto
asset, in the context in which it was being offered and sold,
constituted or was subject to an investment contract. If the crypto
asset constituted or was subject to an investment contract, then the
issuer of the investment contract was expected to comply with the
existing Federal securities laws.
---------------------------------------------------------------------------
\26\ See, e.g., Gladius Network LLC, Release No. 33-10608 (Feb.
20, 2019); Paragon Coin, Inc., Release No. 33-10574 (Nov. 16, 2018);
In re Munchee, Inc., Release No. 33-10445 (Dec. 11, 2017); Division
of Corporation Finance no-action letter to IMVU, Inc. (Nov. 19,
2020); Division of Corporation Finance no-action letter to Pocketful
of Quarters, Inc. (July 25, 2019); Division of Corporation Finance
no-action letter to TurnKey Jet, Inc. (Apr. 3, 2019).
---------------------------------------------------------------------------
Some Commissioners and other commentators expressed concerns about
the Commission's approach to crypto assets during this period.\27\ Some
described that approach as ``regulation by enforcement,'' stating that
the Commission pursued enforcement actions against crypto asset issuers
for alleged violations of the Federal securities laws rather than
developing a tailored regulatory framework that accommodates crypto
asset innovation and entrepreneurship.\28\ Others stated that the
Commission's existing regulatory framework, which was designed with
traditional securities (e.g., stocks and bonds) in mind, is unfit for
application to covered investment contracts.\29\
---------------------------------------------------------------------------
\27\ Similarly, during this period, the Commission received
several rulemaking petitions regarding its regulatory approach to
crypto assets and transactions involving crypto assets. See, e.g.,
Coinbase Global, Inc., Rulemaking petition requesting that the
Commission propose and adopt rules to govern the regulation of
securities that are offered and traded via digitally native methods,
including potential rules to identify which digital assets are
securities (July 21, 2022); J.W. Verret, Petition for Rulemaking to
request that the Commission issue an open call for comment from the
public regarding the need for flexibility in the application of the
federal securities laws to digital assets in order to initiate an
open-sourced redesign of regulations enforced pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934, the
Investment Advisers Act of 1940, and the Investment Company Act of
1940, and other laws enforced by the SEC (Jan. 22, 2022); Vincent
Molinari, Sustainable Holdings, PBC, Request the Commission provide
regulatory clarity with respect to the regulation of a new form of
digital assets--non-fungible tokens (Apr. 12, 2021); Vincent R.
Molinari, Templum Markets, LLC, Rulemaking petition on digital asset
mining (Revised) (Apr. 4, 2019); Vincent R. Molinari, Templum, Inc.,
Request for rulemaking to address how digital assets are regulated
once a trade occurs (Dec. 12, 2018); Vincent R. Molinari, Liquid M
Capital, LLC, Rulemaking petition related to issuance of initial
coin offerings that took place prior to the promulgation of related
guidance by the Commission (Jan. 26, 2018); Vincent Molinari, Ouisa
Capital, Rulemaking petition regarding the regulation of digital
assets and blockchain technology (Mar. 15, 2017). The Commission has
considered these petitions in connection with the proposed
amendments, and the proposed amendments address several aspects of
the petitions.
\28\ See, e.g., Commissioner Hester M. Peirce, Outdated: Remarks
before the Digital Assets at Duke Conference (Jan. 20, 2023),
available at https://sec.gov/newsroom/speeches-statements/peirce-remarks-duke-conference-012023 (``Why not set forth a coherent legal
framework in a rule? After all, if we continued with our regulation-
by-enforcement approach at our current pace, we would approach 400
years before we got through the tokens that are allegedly
securities. By contrast, an SEC rule would have universal--albeit
not retroactive--coverage as soon as it took effect.'');
Commissioner Mark T. Uyeda, Remarks at the ``SEC Speaks'' Conference
2022 (Sept. 9, 2022), available at https://sec.gov/newsroom/speeches-statements/uyeda-speech-sec-speaks-090922; Commissioner
Mark T. Uyeda, Remarks at the ``SEC Speaks'' Conference 2025 (May
19, 2025), available at https://sec.gov/newsroom/speeches-statements/uyeda-remarks-sec-speaks-051925.
\29\ See, e.g., Brady Dale, What SEC disclosure for crypto
assets could look like, Axios (Sept. 5, 2024), available at https://axios.com/2024/09/05/crypto-blockchain-sec-disclosure-regisrations-s1. Although commentators often referred to crypto assets that are
subject to an investment contract, they did not use the term
``covered investment contracts,'' as that is a new term that we are
proposing to define in Regulation Crypto Assets. Nonetheless, we
believe many of the views commentators expressed would apply equally
to covered investment contracts (as we propose to define that term).
For the sake of convenience and consistency, therefore, we use that
term throughout this release.
---------------------------------------------------------------------------
2. Developments Beginning in 2025
a. Crypto Task Force and President's Working Group
In early 2025, the Commission's approach to crypto assets began to
shift. The Commission's Acting Chairman Mark T. Uyeda established a
Crypto Task Force.\30\ The Crypto Task Force's focus is to support the
Commission's efforts to draw clear regulatory lines, appropriately
distinguish securities from non-securities, craft tailored disclosure
frameworks, provide realistic paths to registration for both crypto
assets and market intermediaries, ensure that investors have the
information necessary to make investment decisions, and make sure that
enforcement resources are deployed judiciously.\31\ To this end, the
Crypto Task Force has hosted a series of roundtables,\32\ held meetings
with members of the public,\33\ and solicited and received written
input from members of the public.\34\ That written input is described
in more detail in section I.B below.
---------------------------------------------------------------------------
\30\ See U.S. Securities and Exchange Commission, Crypto Task
Force, available at https://sec.gov/about/crypto-task-force.
\31\ See id.
\32\ See U.S. Securities and Exchange Commission, Crypto Task
Force Roundtables, available at https://sec.gov/about/crypto-task-force/crypto-task-force-roundtables.
\33\ See U.S. Securities and Exchange Commission, Crypto Task
Force Meetings, available at https://sec.gov/about/crypto-task-force/crypto-task-force-meetings.
\34\ See U.S. Securities and Exchange Commission, Crypto Task
Force Written Input, available at https://sec.gov/about/crypto-task-force/crypto-task-force-written-input.
---------------------------------------------------------------------------
In addition, as part of an effort to provide greater clarity on the
application of the Federal securities laws to crypto assets, the
Commission's Division of Corporation Finance issued a series of staff
statements beginning in February 2025. These statements provided the
Division's views regarding the application of the Federal securities
laws to various crypto asset-related matters, including meme coins,\35\
proof-
[[Page 54514]]
of-work mining activities,\36\ stablecoins,\37\ offerings and
registrations of securities in the crypto asset markets,\38\ protocol
staking activities,\39\ crypto asset exchange-traded products,\40\
liquid staking activities,\41\ and tokenized securities.\42\
---------------------------------------------------------------------------
\35\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Staff Statement on Meme Coins (Feb. 27, 2025),
available at https://sec.gov/newsroom/speeches-statements/staff-statement-meme-coins. This statement and any other staff statement
referenced in this release is not a rule, regulation, guidance, or
statement of the Commission, and the Commission has neither approved
nor disapproved its content. Staff statements have no legal force or
effect: they do not alter or amend applicable law, and they create
no new or additional obligations for any person.
\36\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Statement on Certain Proof-of-Work Mining
Activities (Mar. 20, 2025), available at https://sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025.
\37\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Statement on Stablecoins (Apr. 4, 2025),
available at https://sec.gov/newsroom/speeches-statements/statement-stablecoins-040425.
\38\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Offerings and Registrations of Securities in
the Crypto Asset Markets (Apr. 10, 2025) (``CF Disclosure
Statement''), available at https://sec.gov/newsroom/speeches-statements/cf-crypto-securities-041025.
\39\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Statement on Certain Protocol Staking
Activities (May 29, 2025), available at https://sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925.
\40\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Crypto Asset Exchange-Traded Products (July 1,
2025), available at https://sec.gov/newsroom/speeches-statements/cf-crypto-asset-exchange-traded-products-070125.
\41\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Statement on Certain Liquid Staking Activities
(Aug. 5, 2025), available at https://sec.gov/newsroom/speeches-statements/corpfin-certain-liquid-staking-activities-080525.
\42\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Division of Investment Management, and Division
of Trading and Markets, Statement on Tokenized Securities (Jan. 28,
2026), available at https://sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826?utm_medium=email&utm_source=govdelivery; see also U.S.
Securities and Exchange Commission, Division of Trading and Markets,
Frequently Asked Questions Relating to Crypto Asset Activities and
Distributed Ledger Technology (last reviewed or updated Feb. 19,
2026), available at https://sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/frequently-asked-questions-relating-crypto-asset-activities-distributed-ledger-technology?utm_medium=email&utm_source=govdelivery.
---------------------------------------------------------------------------
Further, President Donald J. Trump issued an executive order titled
``Strengthening American Leadership in Digital Financial Technology''
on January 23, 2025.\43\ This executive order, among other things,
established the President's Working Group on Digital Asset Markets
(``President's Working Group'')--composed of the Chairman of the
Commission and the heads of several other Federal departments
agencies--and directed the President's Working Group to ``propose a
Federal regulatory framework governing the issuance and operation of
digital assets.'' \44\
---------------------------------------------------------------------------
\43\ Exec. Order No. 14178, Strengthening American Leadership in
Digital Financial Technology (Jan. 23, 2025) [90 FR 8647 (Jan. 31,
2025)] (``Exec. Order No. 14178'').
\44\ Id. at section 4(c)(i).
---------------------------------------------------------------------------
On July 30, 2025, the President's Working Group issued a report
consisting of several regulatory recommendations.\45\ Some of those
recommendations were directed at the Commission, including that the
Commission should use its rulemaking and exemptive authority under the
Securities Act to:
---------------------------------------------------------------------------
\45\ See President's Working Group Report at 141-59.
---------------------------------------------------------------------------
Establish a fit-for-purpose exemption from registration
under section 5 of the Securities Act for securities distributions
involving digital assets; \46\
---------------------------------------------------------------------------
\46\ The term ``digital asset'' is defined in the executive
order as referring to ``any digital representation of value that is
recorded on a distributed ledger, including cryptocurrencies,
digital tokens, and stablecoins.'' Exec. Order No. 14178 at section
2(a).
---------------------------------------------------------------------------
Establish a time-limited safe harbor or exemption from
certain securities law requirements for transactions involving digital
assets that may be subject to an investment contract because they are
not yet fully functional or associated with a sufficiently
decentralized \47\ network to allow for progressive functionality or
decentralization; and
---------------------------------------------------------------------------
\47\ See President's Working Group Report at 20 (``The term
`decentralized' typically refers to the use of blockchain
technologies to provide financial or nonfinancial services on a
peer-to-peer basis.'').
---------------------------------------------------------------------------
Establish a safe harbor for certain airdrops from
characterization as ``sales'' under section 2(a)(3) of the Securities
Act \48\ or an exemption from the corresponding registration
requirements under section 5 of the Securities Act.
---------------------------------------------------------------------------
\48\ 15 U.S.C. 77b(a)(3).
---------------------------------------------------------------------------
On July 31, 2025, following publication of the President's Working
Group Report, Commission Chairman Paul S. Atkins announced the launch
of ``Project Crypto''--a Commission-wide initiative to modernize the
Federal securities rules and regulations--and directed the Commission's
staff ``to swiftly develop proposals to implement the [President's
Working Group's] recommendations.'' \49\ Among other things, Chairman
Atkins directed the staff to ``work to develop clear guidelines that
market participants can use to determine whether a crypto asset is a
security or subject to an investment contract'' and ``for those crypto
asset transactions that are subject to the securities laws, . . . to
propose purpose-fit disclosures, exemptions, and safe harbors,
including for so-called `initial coin offerings,' `airdrops,' and
network rewards.'' \50\
---------------------------------------------------------------------------
\49\ Chairman Paul S. Atkins, American Leadership in the Digital
Finance Revolution (July 31, 2025), available at https://sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125.
\50\ Id.
---------------------------------------------------------------------------
b. 2026 Interpretation
On March 17, 2026, the Commission issued a release titled
Application of the Federal Securities Laws to Certain Types of Crypto
Assets and Certain Transactions Involving Crypto Assets (``2026
Interpretation'').\51\ That release set forth an interpretation of the
definition of ``security'' as applied to crypto assets and transactions
involving crypto assets. Among other things, the 2026 Interpretation
classified crypto assets into categories and analyzed each category
under the definition of ``security.'' Specifically, the release
classified crypto assets into the following five categories based on
their characteristics, uses, and functions: (i) digital commodities;
(ii) digital collectibles; (iii) digital tools; (iv) stablecoins; and
(v) digital securities. The release provided the Commission's view that
digital securities are securities, stablecoins may or may not be
securities depending on their characteristics, and digital commodities,
digital collectibles, and digital tools are not themselves
securities.\52\
---------------------------------------------------------------------------
\51\ See 2026 Interpretation.
\52\ See id. at 13717. The 2026 Interpretation also noted that
there may be crypto assets that do not fall within any of these five
categories, as well as crypto assets with hybrid characteristics
that may fall within more than one category.
---------------------------------------------------------------------------
The 2026 Interpretation further explained that, as with any asset
that is not a security, a non-security crypto asset can be offered and
sold subject to an investment contract, which is a security.\53\ The
Commission acknowledged, however, the difficulty of applying the Howey
test to crypto assets and transactions involving crypto assets and
market participants' requests for guidance regarding the circumstances
under which the Commission will characterize crypto assets as
securities and transactions involving crypto assets as securities
transactions. To address those challenges and requests, and to provide
greater clarity regarding the treatment of crypto assets under the
Federal securities laws, the 2026 Interpretation addressed how non-
security crypto assets become subject to, and how they cease to be
subject to, an investment contract.
---------------------------------------------------------------------------
\53\ Id.
---------------------------------------------------------------------------
With respect to how non-security crypto assets become subject to an
[[Page 54515]]
investment contract, the 2026 Interpretation noted that how an issuer
markets and promotes a contract, transaction, or scheme is relevant to
assessing whether the issuer is offering or selling an investment
contract and thus a security.\54\ That is, a non-security crypto asset
becomes subject to an investment contract when an issuer offers it by
inducing an investment of money in a common enterprise with
representations or promises to undertake essential managerial efforts
from which a purchaser would reasonably expect to derive profits.
---------------------------------------------------------------------------
\54\ Id. at 13721.
---------------------------------------------------------------------------
Under such circumstances, secondary market offers and sales of such
a non-security crypto asset would constitute securities transactions
that must be registered under the Securities Act or conducted pursuant
to an available exemption from registration. The associated investment
contract will continue to be transferred to subsequent purchasers of
the non-security crypto asset in secondary market transactions until
the non-security crypto asset separates from the issuer's
representations or promises, as discussed below. Market participants
should refer to the 2026 Interpretation for a more complete discussion
of the Commission's views as to the circumstances under which a non-
security crypto asset may become subject to an investment contract.
With respect to how a non-security crypto asset that was previously
offered and sold subject to an investment contract ceases to be subject
to such investment contract, the 2026 Interpretation stated that for
the non-security crypto asset to remain subject to the investment
contract, purchasers must continue to reasonably expect the issuer's
representations or promises to engage in essential managerial efforts
to remain connected to the non-security crypto asset.\55\ The 2026
Interpretation also stated that, when a purchaser of a non-security
crypto asset that had been subject to an investment contract could no
longer reasonably expect the issuer's representations or promises to
engage in essential managerial efforts to remain connected to the non-
security crypto asset, the non-security crypto asset separates from
such representations or promises, and thereafter the non-security
crypto asset is not subject to the Federal securities laws. The 2026
Interpretation set forth the Commission's view that a non-security
crypto asset would no longer be subject to an investment contract when:
(1) the issuer has fulfilled its representations or promises to engage
in essential managerial efforts, or (2) the purchaser would not
reasonably expect the issuer to be able to fulfill or to continue to
engage in the essential managerial efforts it represented or promised
it would undertake. Market participants should refer to the 2026
Interpretation for a more complete discussion of the Commission's views
as to the circumstances under which a non-security crypto asset may
separate from and cease to be subject to an investment contract.
---------------------------------------------------------------------------
\55\ See id. at 13722.
---------------------------------------------------------------------------
The 2026 Interpretation also set forth the Commission's views
regarding the investment contract status of certain crypto asset
disseminations known as ``airdrops.'' The Commission noted that ``[a]n
`airdrop' is a means for crypto asset issuers to disseminate their
crypto assets in exchange for no or nominal consideration'' and
discussed some of the reasons why an issuer may conduct an airdrop.\56\
The Commission then provided its interpretation with respect to
airdrops of non-security crypto assets to recipients who do not provide
the issuer with money, goods, services, or other consideration in
exchange for the airdropped non-security crypto asset. Specifically,
the Commission stated that, in those circumstances, ``the non-security
crypto asset does not become subject to an investment contract because
the first element of the Howey test--requiring an investment of money--
is not met.'' \57\ Market participants should refer to the 2026
Interpretation for a more complete discussion of the Commission's views
regarding the investment contract status of airdrops.\58\
---------------------------------------------------------------------------
\56\ Id. at 13730 (``Issuers use airdrops for a variety of
reasons, such as to generate interest in and expand ownership and
use of their crypto assets, reward early users or loyalty of users
of a crypto system, promote a software application, build a
community, decentralize governance authority with respect to an
open-source crypto system, or award high-scoring players of an
associated video game.'').
\57\ Id. at 13731.
\58\ See also infra note 200 and accompanying text for a
discussion of airdrops in the context of the startup exemption.
---------------------------------------------------------------------------
B. Written Input Provided to the Crypto Task Force
The Crypto Task Force was established on January 21, 2025 to
``develop[] a comprehensive and clear regulatory framework for crypto
assets.'' \59\ One month later, Commissioner Hester M. Peirce published
a statement inviting input from the public on ``some of the questions
with which the Task Force is wrestling.'' \60\ Those questions were
categorized according to the following 10 topics: (1) Security Status;
(2) Scoping Out; (3) Public Offerings; (4) Safe Harbor from
Registration; (5) Trading; (6) Custody; (7) Crypto Lending; (8) Crypto
Exchange-Traded Products; (9) Tokenized Securities; and (10) Sandbox
and Related International Issues.\61\
---------------------------------------------------------------------------
\59\ U.S. Securities and Exchange Commission, Crypto Task Force
Designation Letter from Acting Chairman Mark T. Uyeda (Feb. 4,
2025), available at https://sec.gov/files/crypto-task-force-designation-letter.pdf.
\60\ Commissioner Hester M. Peirce, There Must Be Some Way Out
of Here (Feb. 21, 2025), available at https://sec.gov/newsroom/speeches-statements/peirce-statement-rfi-022125 (``Cmr. Peirce
Request for Input'').
\61\ Id.
---------------------------------------------------------------------------
To date, the Crypto Task Force has received over 300 comment
letters.\62\ Commenters include issuers, investors, law firms and legal
professionals, audit and accounting professionals and firms, academics,
professional and investor associations and organizations, investment
companies and advisors, market intermediaries, service providers,
network foundations, foreign entities, other crypto asset market
participants, and other members of the public. Although we have
considered all the comments received, the most relevant comments for
purposes of this proposal were those that addressed the following four
topics: Security Status, Scoping Out, Public Offerings, and Safe Harbor
from Registration. We have summarized below some of the most
significant themes from the comments received on each of these topics.
As discussed in section I.A.2.b above, the Commission addressed many of
the points raised by the ``Security Status'' and ``Scoping Out''
comments in the 2026 Interpretation. Nonetheless, some of those
comments (e.g., those that express a concern about a current lack of
regulatory clarity) are relevant for the proposed rules.
---------------------------------------------------------------------------
\62\ The comment letters are available at https://sec.gov/about/crypto-task-force/crypto-task-force-written-input. Unless otherwise
specified, all references in this release to comment letters are to
the written input submitted to the Crypto Task Force.
---------------------------------------------------------------------------
1. Security Status
With respect to the ``Security Status'' topic, Commissioner Peirce
noted that ``[m]arket participants have expressed a reasonable desire
to determine with ease whether . . . [a given crypto] asset is a
security or is being offered or sold as part of an investment
contract.'' \63\ She further observed that ``[m]arket participants have
expressed concern that the Howey test, as the Commission has applied
it, is a complex analysis that can be difficult to apply
[[Page 54516]]
consistently.'' \64\ To address those concerns, Commissioner Peirce
stated that the Crypto Task Force was seeking to ``make it easier for
investors, market participants, and the Commission to categorize crypto
assets and crypto asset transactions.'' \65\ The four questions in this
category sought to solicit input on this point.
---------------------------------------------------------------------------
\63\ Cmr. Peirce Request for Input.
\64\ Id.
\65\ Id.
---------------------------------------------------------------------------
Several commenters that addressed these questions stated that many
crypto assets are not themselves necessarily securities.\66\ For
example, one commenter stated that ``crypto assets should be viewed as
commodities that may be offered and sold as securities based on an
assessment of the facts and circumstances of a particular offering, but
do not intrinsically have the characteristics of securities.'' \67\ At
the same time, some commenters also acknowledged that some crypto
assets, including those referred to as ``digital securities,''
``tokenized securities,'' or something similar, are themselves
securities.\68\
---------------------------------------------------------------------------
\66\ See, e.g., letters from a16z, Comments on the SEC Crypto
Task Force's Questions Concerning the Security Status of Crypto
Assets (Mar. 13, 2025) (``a16z 1''); Lewis Rinaudo Cohen (Mar. 20,
2025) (``L. Cohen''); Nasdaq, Inc. (Apr. 25, 2025) (``Nasdaq'');
Perkins Coie LLP (Apr. 23, 2025) (``Perkins Coie 1''); Ripple Labs
Inc. (Mar. 21, 2025) (``Ripple 1''); Ripple Labs Inc. (Jan. 9, 2026)
(``Ripple 2''); The Digital Chamber (Apr. 28, 2025) (``TDC 1'').
\67\ Letter from Perkins Coie 1 (emphasis in original).
\68\ See, e.g., letters from Coinbase Global, Inc. (Mar. 19,
2025) (``Coinbase''); Nasdaq; Perkins Coie 1.
---------------------------------------------------------------------------
Several commenters described difficulty associated with the Howey
test and requested additional clarity from the Commission regarding the
application of that test to crypto assets and transactions involving
such assets.\69\ One commenter expressed the view that ``the [Howey]
test is subjective and has led to inconsistent and controvertible
results.'' \70\ According to the commenter, the Howey test's
``shortcomings are evidenced by the bevy of SEC enforcement actions
taken over the past few years, which arose from fierce disputes as to
whether digital assets of varying types constituted securities.'' \71\
Another commenter stated that the Howey test is unpredictable,
difficult to enforce, impractical to apply, and of uncertain
bounds.\72\
---------------------------------------------------------------------------
\69\ See, e.g., letters from Alternative Investment Management
Association (Mar. 25, 2025) (``AIMA''); a16z 1; Blockchain Research
Lab (Feb. 18, 2025); Figure Markets (Mar. 25, 2025) (``Figure
Markets''); Foley & Lardner LLP (Mar. 20, 2025) (``Foley &
Lardner''); Nasdaq. But see, e.g., letter from Lee Reiners,
Lecturing Fellow, Duke University (Mar. 21, 2025) (suggesting that
the Howey test provides a viable regulatory taxonomy for crypto
assets and transactions involving such assets).
\70\ Letter from Nasdaq.
\71\ Id.
\72\ See letter from a16z 1.
---------------------------------------------------------------------------
Further, some commenters suggested that the level of a crypto
network's decentralization is essential for determining whether a
crypto asset is the subject of an investment contract.\73\ According to
one commenter, ``[t]he degree of centralized control and the extent of
`ongoing efforts' could be used as factors to distinguish between a
commodity and a security.'' \74\ Another commenter stated that ``[a]
digital asset does not satisfy [the Howey] test when no one has
unilateral control over the protocol underlying the asset because,
under those circumstances, there is no `common enterprise' run by a
`manage[r]' or `promoter.' '' \75\ By contrast, one commenter stated
that `` `decentralization', while highly relevant for user confidence
and the overall success of the crypto asset sector, is not necessarily
the best bright-line standard for determining when securities law
applies to crypto asset transactions.'' \76\ Similarly, another
commenter stated that ``[b]ecause `decentralization' is not a binary
state, but a subjective and often fluid continuum involving code
contribution, node distribution, economic factors, and governance
participation and control, relying on it for legal classification
introduces intolerable uncertainty.'' \77\
---------------------------------------------------------------------------
\73\ See, e.g., letters from AIMA; a16z, Recommendations
Regarding a Safe Harbor for Certain Airdrops and Incentive-Based
Rewards of Network Tokens (Mar. 13, 2025) (``a16z 2''); Crypto
Council for Innovation (May 29, 2025) (``Crypto Council''); Jump
Crypto (May 1, 2025) (``Jump Crypto''); J.W. Verret (Feb. 23, 2025);
Perkins Coie 1.
\74\ Letter from AIMA.
\75\ Letter from Jump Crypto.
\76\ Letter from L. Cohen.
\77\ Letter from Ripple 2; see also letter from Teresa Goody
Guill[eacute]n (Jan, 26, 2026) (``Goody Guill[eacute]n'')
(``Decentralization is multifaceted and, in some cases, borders on
illusory; it is often conflated with distributed; and it does not
guarantee reduced risk or accountability. . . . The key question
should not be `is it decentralized' but whether residual risk is
reduced by design, and if not, how to address it.'').
---------------------------------------------------------------------------
Finally, several commenters recommended that the Commission clarify
the application of the Federal securities laws to certain technology
functions that are inherent to a crypto network.\78\ Examples of such
functions include mining, staking, and validating. One commenter
requested ``guidelines that distinguish between tokens used for network
operations and those structured as investment instruments. Tokens used
for staking, governance, or paying [transaction] fees enable blockchain
functionality rather than serving as investment vehicles.'' \79\
---------------------------------------------------------------------------
\78\ See, e.g., letters from AIMA; a16z 1; Cardano Foundation
(Apr. 22, 2025) (``Cardano''); Coinbase; Dragonchain (Mar. 10, 2025)
(``Dragonchain''); SIFMA (May 9, 2025) (``SIFMA 1''); TDC 1.
\79\ Letter from AIMA.
---------------------------------------------------------------------------
2. Scoping Out
With respect to the ``Scoping Out'' topic, Commissioner Peirce
stated that ``[t]he Commission may be able to provide greater clarity
to investors and other market participants by identifying categories of
crypto assets (and transactions) that do not fall within its
authority.'' \80\ As such, the two questions on this topic solicited
input on whether ``the security status of certain categories of crypto
assets [should] be addressed'' and how to ``establish a workable
taxonomy while remaining merit- and technology-neutral.'' \81\
---------------------------------------------------------------------------
\80\ Cmr. Peirce Request for Input.
\81\ Id.
---------------------------------------------------------------------------
Commenters generally agreed that it would be helpful for the
Commission to clarify the security status of different types of crypto
assets and transactions involving crypto assets.\82\ Many of those
commenters suggested that, in determining security status, the
Commission look to the economic substance of a particular crypto asset
or associated network or application rather than the technological form
of such asset, network, or application.\83\ One commenter emphasized
``the importance of adopting a principles-based approach that is
merits-based, technology-neutral, focuses on the economic substance and
risks of specific digital assets (rather than their technological
form), and primarily considers an asset's function as the basis of
determining its status as a security.'' \84\ Another commenter
suggested not ``fixat[ing] on classification'' but ``regulating
residual risk across three axes: agency risk, derivative risk, and
market-integrity risk.'' \85\
---------------------------------------------------------------------------
\82\ See, e.g., letters from AIMA; Cardano; Edward Lee (Apr. 1,
2025); Ethena Labs, S.A. (June 11, 2025); Figure Markets; Foley &
Lardner; Josh Lawler (Mar. 17, 2025) (``J. Lawler''); National
Society of Compliance Professionals (Sept. 8, 2025); SIFMA 1;
Polsinelli PC (on behalf of The Digital Chamber) (June 27, 2025).
\83\ See, e.g., letters from AIMA; Cardano; SIFMA 1.
\84\ Letter from SIFMA 1.
\85\ Letter from Goody Guill[eacute]n.
---------------------------------------------------------------------------
3. Public Offerings
With respect to the ``Public Offerings'' topic, Commissioner Peirce
stated that ``[p]eople who have conducted or attempted to conduct
registered or qualified token offerings have expressed frustration
about the cost and feasibility of registration.'' \86\ Commissioner
Peirce
[[Page 54517]]
further noted that ``[t]okens and their issuers can differ
significantly in some aspects from traditional securities and their
issuers.'' \87\ Accordingly, Commissioner Peirce's statement solicited
input on several aspects of this topic, including whether the
Commission should develop tailored disclosure requirements for covered
investment contracts and whether Regulation A ``provide[s] a useful
vehicle to conduct offerings'' of covered investment contracts.\88\
---------------------------------------------------------------------------
\86\ Cmr. Peirce Request for Input.
\87\ Id.
\88\ Id. Although commenters often referred to crypto assets
that are subject to an investment contract when providing feedback
to the Crypto Task Force, they did not use the term ``covered
investment contracts,'' as that is a new term that we are proposing
to define in Regulation Crypto Assets. Nonetheless, we believe many
of the views commenters expressed would apply equally to covered
investment contracts (as we propose to define that term). For the
sake of convenience and consistency, therefore, we use that term
throughout this release, including when describing commenter input.
---------------------------------------------------------------------------
Several commenters suggested that the Commission's existing
offering regimes, including the related disclosure requirements, are
unfit for application to covered investment contracts and their
issuers.\89\ For example, some commenters expressed the view that the
Commission's current disclosure framework is not tailored to elicit the
types of information that are likely to be material to investment
decisions with respect to covered investment contracts.\90\ As such,
several commenters shared recommendations regarding the types of
information that the Commission should mandate if it were to adopt a
tailored disclosure regime with respect to crypto assets.\91\ The
information they recommended for disclosure includes the ecosystem and
governance mechanism with respect to a crypto asset, plans of
development for a crypto network or allocation, and source code
security.\92\
---------------------------------------------------------------------------
\89\ See, e.g., letters from a16z 2; a16z (May 1, 2025) (``a16z
3''); AIMA; Anderson P.C. (May 12, 2025) (``Anderson''); L. Cohen;
Coinbase; CoinList (July 9, 2025) (``CoinList''); Crowdfunding
Professional Association (June 13, 2025) (``CfPA''); Figure Markets;
Global Digital Assets and Cryptocurrency Association (May 16, 2025)
(``GDCA''); J. Lawler; Nasdaq; SIFMA (June 11, 2025) (``SIFMA 2'');
The Digital Chamber (June 26, 2025) (``TDC 2''). One commenter
conducted a survey of 2,000 self-identified crypto asset investors.
See letter from Broadridge Financial Solutions (Apr. 29, 2025)
(``Broadridge''). The results of that survey ``show that individuals
regard traditional types of disclosure information as important in
making and monitoring crypto investments,'' including ``information
on risks, financial overview, management, and governance.'' Id. The
commenter further noted that ``[b]y contrast, survey respondents
rated information on tokenomics, network/platform activity, and
perspective of the core team lower in importance.'' Id. (emphasis in
original). The commenter concluded, however, that these survey
results ``suggest[] that [the surveyed investors] are unaware of the
importance of other relevant information that is helpful in
evaluating and monitoring investments in these asset classes.'' Id.
As a result, the commenter stated that ``[t]ailored disclosures,
together with greater financial literacy education, can support
robust growth in the crypto asset markets, and protect investors by
affording them high levels of innovation and greater choice.'' Id.
\90\ See, e.g., letters from a16z 3; AIMA; Anderson; Broadridge;
CfPA; L. Cohen; Coinbase; GDCA; Nasdaq; TDC 2.
\91\ See, e.g., letters from a16z 3; Ava Labs Inc. (Sept. 3,
2025); CfPA; Coinbase; GDCA; Joon Kim (Mar. 6, 2025) (``J. Kim'');
Nasdaq; SIFMA 2.
\92\ See, e.g., letter from Coinbase.
---------------------------------------------------------------------------
In addition, several commenters generally supported Regulation A as
a potential starting point or model for a covered investment contract
offering framework.\93\ Some commenters, however, identified certain
features of Regulation A that either make it ill-suited or unavailable
for covered investment contract offerings. Commenters noted, for
example, that Regulation A is available only with respect to offerings
of equity securities, debt securities, and equity-related convertible
securities.\94\ Commenters also pointed to the difficulty of complying
with State securities laws with respect to securities purchased in
Regulation A offerings, including because the Federal securities laws
do not preempt State law with respect to secondary market transactions
in such securities.\95\
---------------------------------------------------------------------------
\93\ See, e.g., letters from a16z 3; CfPA; DealMaker (May 30,
2025) (``DealMaker''); Figure Markets; CrowdCheck Law (Mar. 19,
2025) (``CrowdCheck Law''); Nasdaq; TDC 2.
\94\ See, e.g., letters from CrowdCheck Law; TDC 2. Eligible
securities under Regulation A are defined as ``[e]quity securities,
debt securities, and securities convertible or exchangeable to
equity interests, including any guarantees of such securities, but
not including asset-backed securities as such term is defined in
Item 1101(c) of Regulation AB.'' 17 CFR 230.261(c).
\95\ See, e.g., letters from CrowdCheck Law; DealMaker.
---------------------------------------------------------------------------
4. Safe Harbor From Registration
Finally, the ``Safe Harbor from Registration'' topic solicited
input on several aspects of a potential ``time-limited exemption from
the registration requirements under the Securities Act for offers and
sales of crypto assets during the development of a blockchain project''
that Commissioner Peirce first suggested in 2020.\96\ Among other
things, this potential exemption would ``provide network developers
with a grace period within which, under certain conditions, they can
facilitate broad participation in and the development of a functional
or decentralized network.'' \97\ At the end of this grace period,
``token transactions may not be securities transactions if the network
had matured into a decentralized or functioning network that is not
dependent on a single person or group to carry out the essential
managerial or entrepreneurial efforts.'' \98\ Commissioner Peirce's
statement solicited input on several aspects of her suggested
exemption.
---------------------------------------------------------------------------
\96\ See Cmr. Peirce Request for Input (citing Commissioner
Hester M. Peirce, Token Safe Harbor Proposal 2.0 (Apr. 13, 2021)
(``Cmr. Peirce Proposal 2.0''), available at https://sec.gov/newsroom/speeches-statements/peirce-statement-token-safe-harbor-proposal-20). Cmr. Peirce Proposal 2.0 is an updated version of the
token safe harbor proposal Commissioner Peirce originally suggested
in February 2020. See Commissioner Hester M. Peirce, Running on
Empty: A Proposal to Fill the Gap Between Regulation and
Decentralization (Feb. 6, 2020) (``Commissioner Peirce, Running on
Empty''), available at https://sec.gov/newsroom/speeches-statements/peirce-remarks-blockress-2020-02-06).
\97\ Cmr. Peirce Request for Input.
\98\ Id.
---------------------------------------------------------------------------
Many commenters generally supported a potential exemption along
these lines.\99\ One commenter stated that ``[a] thoughtfully
calibrated Safe Harbor--appropriately tailored to the realities, risks,
and opportunities of digital assets and blockchain technologies--will
provide important information to investors, eliminate information
asymmetries, and protect investors, token holders, builders, and
projects operating in this space while the long-term legislative and
regulatory policymaking processes play out.'' \100\ Some commenters
also suggested modifications to the potential exemption.\101\ For
example, one commenter proposed a revised exemption with multiple
modifications, including a clarification regarding the distinction
between the ``utility'' path to non-security status and the
[[Page 54518]]
``decentralization'' path.\102\ Another commenter suggested
modifications intended to better protect investors from projects that
remain subject to centralized control.\103\
---------------------------------------------------------------------------
\99\ See, e.g., letters from Anderson; Coinbase; DeFi Education
Fund (Apr. 18, 2025) (``DeFi Education Fund''); Figure Markets;
Gabriel Shapiro (Mar. 14, 2025) (``G. Shapiro''); Hedera Hashgraph
LLC (June 3, 2025); J. Kim; Jump Crypto; L. Cohen; Plume Network LLC
(May 5, 2025); The Digital Chamber (May 21, 2025) (``TDC 3''). But
see, e.g., letter from CrowdCheck Law (``We believe that if an
exemption under Regulation A is available, there would be no need
for a safe harbor of the kind described.''). One commenter supported
the ``intent behind'' the potential exemption but stated ``we do not
support an exemption'' because the commenter ``believe[d] that
legislation is ultimately necessary to foster the growth of the
crypto asset industry, continued blockchain innovation and to ensure
investor protection.'' Letter from DealMaker; see also letter from
a16z 3 (supporting ``strongly'' the goal of the potential exemption
but stating that ``the Crypto Task Force can best achieve its
mandate by deferring this matter to Congress in the near term'').
The commenter also expressed concern that the potential exemption
could ``potentially encourage existing entrepreneurs who utilize
Regulation A and Regulation [Crowdfunding] to pivot to `token'
offerings that are entirely exempt from SEC registration and many of
the disclosure obligations that protect investors.'' Letter from
DealMaker.
\100\ Letter from DeFi Education Fund.
\101\ See, e.g., letters from a16z 3; DeFi Education Fund; G.
Shapiro.
\102\ Letter from G. Shapiro.
\103\ See letter from a16z 3.
---------------------------------------------------------------------------
C. Summary of the Proposed Rules
In light of the concerns raised about the Commission's approach to
covered investment contracts before 2025 (as described in section
I.A.1), the regulatory developments beginning in 2025 (as described in
section I.A.2), and the public input that commenters provided to the
Crypto Task Force (as described in section I.B), we are proposing new
rules with respect to covered investment contracts.\104\
---------------------------------------------------------------------------
\104\ See supra note 4 for the definition of ``covered
investment contract'' under the proposed rules.
---------------------------------------------------------------------------
The proposed rules would be set forth in a new regulation titled
``Regulation Crypto Assets'' \105\ that would comprise the following
subparts:
---------------------------------------------------------------------------
\105\ See proposed 17 CFR part 228.
---------------------------------------------------------------------------
Subpart A would contain general rules, many of which would
be applicable to all the other rules in the regulation.\106\ These
general rules are discussed in section II.A below.
---------------------------------------------------------------------------
\106\ See proposed 17 CFR 228.100 through 104.
---------------------------------------------------------------------------
Subpart B would set forth an exemption from the
registration requirements of section 5 of the Securities Act \107\ for
certain offers, sales, and other distributions of covered investment
contracts during a period of up to four years (``startup
exemption'').\108\ As discussed in more detail in section II.B below,
the startup exemption would permit offerings of up to $5 million during
the four-year period.
---------------------------------------------------------------------------
\107\ 15 U.S.C. 77e.
\108\ See proposed 17 CFR 228.200.
---------------------------------------------------------------------------
Subpart C would set forth an exemption from the
registration requirements of section 5 of the Securities Act that would
permit offerings of up to $75 million during each 12-month period
(``fundraising exemption'').\109\ The mechanics of the fundraising
exemption, discussed in more detail in section II.C below, would be
modeled, in large part, on Regulation A \110\ and would consist of two
tiers with distinct offering limits.
---------------------------------------------------------------------------
\109\ See proposed 17 CFR 228.300 through 307.
\110\ See 17 CFR 230.251 through 263.
---------------------------------------------------------------------------
Subpart D would set forth a safe harbor from the term
``investment contract'' in the definitions of ``security'' in the
Securities Act \111\ and the Exchange Act \112\ (``investment contract
safe harbor'').\113\ As discussed in more detail in section II.D below,
if the conditions of the investment contract safe harbor are satisfied,
then a crypto asset would be deemed by the Commission not to be subject
to an investment contract for purposes of those definitions of
``security.''
---------------------------------------------------------------------------
\111\ 15 U.S.C. 77b(a)(1).
\112\ 15 U.S.C. 78c(a)(10).
\113\ See proposed 17 CFR 228.400.
---------------------------------------------------------------------------
Subpart E would define ``qualified purchaser'' for
purposes of section 18(b)(3) of the Securities Act such that State
securities law registration and qualification requirements would be
preempted with respect to offers and sales of covered investment
contracts issued pursuant to an exemption in Regulation Crypto Assets,
as well as certain secondary market transactions with respect to such
covered investment contracts. This proposed definition of ``qualified
purchaser'' is discussed in section II.E below.
We also are proposing new forms that issuers would file with the
Commission when relying on the exemptions and safe harbor in Regulation
Crypto Assets. In addition, we are proposing conforming amendments to
certain existing rules that would help implement the new rules in
Regulation Crypto Assets.
We invite and encourage interested parties to submit comments on
any aspect of the proposed rules. When commenting, please include the
reasoning in support of your position or recommendation and provide any
supporting documentation or data.
II. Discussion of Proposed Rules
A. Regulation Crypto Assets and General Rules (Subpart A, Rules 100
Through 104)
Under our proposal, the rules in Regulation Crypto Assets would be
set forth in part 228 of Title 17, Chapter II of the Code of Federal
Regulations (``CFR''). Consolidating all the rules into a single part
titled ``Regulation Crypto Assets'' may facilitate compliance with the
proposed rules, especially for those issuers that are less familiar
with our rules or may otherwise be unsure where the relevant rules are
located in the CFR.
Subpart A of Regulation Crypto Assets would include the following
proposed rules, each of which would be applicable to all or some of the
other rules in Regulation Crypto Assets:
Proposed 17 CFR 228.100 (``Rule 100''), titled
``Definitions of terms used in Regulation Crypto Assets,'' would set
forth certain definitions that would apply to each of the proposed
rules in Regulation Crypto Assets as well as the related forms.
Proposed 17 CFR 228.101 (``Rule 101''), titled ``General
provisions,'' would contain a series of provisions generally applicable
to Regulation Crypto Assets.
Proposed 17 CFR 228.102 (``Rule 102''), titled ``Inflation
adjustment for offering limits,'' would establish a process whereby the
proposed offering limits would be adjusted for inflation on an ongoing,
predetermined basis without requiring the Commission to engage in
notice and comment rulemaking each time it makes those routine
adjustments.
Proposed 17 CFR 228.103 (``Rule 103''), titled
``Disclosure requirements,'' would set forth principles-based
disclosure requirements that issuers would be required to satisfy under
the startup exemption and the fundraising exemption.
Proposed 17 CFR 228.104 (``Rule 104''), titled
``Disqualification,'' would condition the availability of the startup
exemption and the fundraising exemption on the issuer and certain other
related persons and insiders not being disqualified as a ``bad actor,''
as set forth in 17 CFR 230.262(a) of Regulation A (``Rule 262(a)'').
These proposed rules are discussed below.
1. Definitions (Rule 100)
a. Background
Although defined terms are important in every new regulation, they
are particularly important for Regulation Crypto Assets for several
reasons. As a relatively novel and highly technological asset class, it
is important that terms related to crypto assets be defined clearly so
that they can be understood by all market participants, regardless of
their technological sophistication. Given the rapid pace of innovation
in the crypto asset markets, it also is important that the terms be
both accurate with respect to the current state of the technology and
sufficiently flexible to cover potential developments in the market to
avoid a need to continually revisit and update the definitions. In
addition, because the rules in Regulation Crypto Assets are intended to
be tailored to offerings with respect to a specific type of security
(i.e., covered investment contracts), it is important that they be
appropriately scoped to ensure that offerings of those securities, and
only those securities, are eligible to utilize these rules. Much of
that ``scoping'' would be accomplished through the proposed definitions
in Rule 100.
[[Page 54519]]
b. Proposed Rule
Proposed Rule 100 would set forth certain definitions that would
apply to each of the rules in Regulation Crypto Assets as well as the
related forms. The following terms would be defined in Rule 100:
``Aggregate offering price'' and ``aggregate sales'';
``Associated crypto application'';
``Associated crypto network'';
``Business day'';
``Covered investment contract'';
``Covered transaction'';
``Crypto asset'';
``Final offering circular'';
``Related person''; and
``Subject crypto asset.''
In addition, Rule 100 would provide that other than these
specifically defined terms (and unless otherwise provided), the terms
used in Regulation Crypto Assets (and in new forms, Form 1-CRYPTO, Form
1-KC, Form 1-SC, Form 1-UC, Form TR, and Form NOR, which would be
codified at 17 CFR 239.600 through 605) will have the same meanings as
in 17 CFR 230.405 (``Rule 405''), except that all references to
``registrant'' in those definitions will refer to the issuer of the
securities to be offered and sold under Regulation Crypto Assets.
The term ``aggregate offering price'' would be defined as the sum
of all cash and other consideration to be received for the covered
investment contracts being offered.\114\ The term ``aggregate sales''
would be defined as the gross proceeds for all securities sold pursuant
to other offering statements under Regulation Crypto Assets within the
12 months before the start of, and during, the current offering of
securities. When a mixture of cash and non-cash consideration is to be
received, the aggregate offering price or aggregate sales would be
based on the price at which the covered investment contracts are
offered for cash. Any portion of the aggregate offering price or
aggregate sales attributable to cash received in a foreign currency
must be translated into U.S. currency at a currency exchange rate in
effect on, or at a reasonable time before, the date of the sale of the
covered investment contracts.
---------------------------------------------------------------------------
\114\ Proposed 17 CFR 228.100. The aggregate offering price or
aggregate sales would include, for example, permitted payment
stablecoins received for the covered investment contracts being
offered. Additionally, any fees paid by the investor in connection
with the offering that reduce the amount of consideration received
by the issuer would not count toward the offering limit.
Alternatively, fees incurred by the issuer that it pays with the
proceeds of the offering would not be deducted from the offering
amount for purposes of determining the aggregate offering price or
aggregate sales. These fees instead would constitute a use of
proceeds and should be described, as appropriate, in the issuer's
disclosures.
---------------------------------------------------------------------------
If covered investment contracts are not offered for cash, the
aggregate offering price or aggregate sales would be based on the value
of the consideration as established by bona fide sales of that
consideration made within a reasonable time, or, in the absence of
sales, on the fair value as determined by an accepted standard.
Valuations of non-cash consideration would be required to be reasonable
at the time made. The proposed definitions generally are consistent
with the terms as defined in 17 CFR 230.501 (``Rule 501'') of
Regulation D and as used in 17 CFR 230.251 of Regulation A. The terms
are primarily used in Regulation Crypto Assets to set the offering
limits in the startup exemption and the fundraising exemption.
The term ``associated crypto application'' would be defined to
mean, with respect to a crypto asset, the smart contract or similar
executable software program that is deployed to an associated crypto
network and within which such crypto asset may be used for the
transmission or storage of value or for which the crypto asset
facilitates access or participation. This term is used throughout
Regulation Crypto Assets and is intended to capture the particular
application in which a given crypto asset can be used for various
functions.
The term ``associated crypto network'' would be defined to mean,
with respect to a crypto asset, the blockchain or similar distributed
ledger technology network on which such crypto asset is generated,
minted, or mined. This term is used throughout Regulation Crypto Assets
and is intended to capture the particular network to which a given
crypto asset is ``native'' and on which records regarding ownership of
and transactions in that crypto asset are recorded.
The term ``business day'' would be defined as any day except
Saturdays, Sundays, or Federal holidays. This proposed definition is
consistent with the definition of ``business day'' set forth in 17 CFR
230.261 of Regulation A. This term is used in several rules in
Regulation Crypto Assets, generally with respect to deadlines for
making certain filings with the Commission.
As noted above,\115\ the term ``covered investment contract'' would
be defined as a contract, transaction, or scheme that constitutes an
investment contract; provided that the investment contract must meet
the following requirements: (1) a crypto asset is subject to the
investment contract; (2) such crypto asset is not a security; and (3)
no asset other than such crypto asset (including any security or non-
security asset) is subject to the investment contract. This term is
used throughout Regulation Crypto Assets, as the startup exemption and
the fundraising exemption are available only for offers and sales of
covered investment contracts (i.e., issuers may not rely on those
exemptions with respect to offers and sales of other types of
securities \116\). Thus, to ensure that it has an appropriate scope,
the definition: (1) includes investment contracts that involve a crypto
asset,\117\ (2) excludes investment contracts that involve crypto
assets that are themselves securities (e.g., digital securities \118\),
and (3) excludes investment contracts that involve any asset other than
a non-security crypto asset.
---------------------------------------------------------------------------
\115\ See supra note 4.
\116\ As discussed in note 19 above, the proposed exemptions are
tailored to covered investment contract offerings. To the extent an
issuer is seeking to conduct an offering of other types of
securities (including investment contracts that involve other types
of securities or non-security assets other than crypto assets), we
believe it would be more appropriate to use another offering
framework, such as a registered offering or an exempt offering under
Regulation A or Regulation D, that is likely better tailored to the
security being offered. For example, to the extent the security
being offered is an equity security, the existing disclosure
frameworks (which contain more issuer-focused disclosures) are more
likely to elicit material disclosures.
\117\ The term ``investment contract'' is not defined in Rule
100. Issuers and other market participants should refer to the 2026
Interpretation for guidance as to whether an investment contract
exists with respect to a crypto asset. See 2026 Interpretation at
13721. The term ``crypto asset'' is defined in Rule 100. See supra
note 3.
\118\ See supra note 52 and accompanying text.
---------------------------------------------------------------------------
The term ``covered transaction'' would be defined as an offer,
sale, or other distribution of a covered investment contract in
reliance on the startup exemption, including, but not limited to: (1)
any public or private offering, including a distribution, of a covered
investment contract in one or a series of capital raising transactions;
or (2) any public or private offering, including a distribution and
transactions referred to as ``airdrops,'' \119\ of a covered investment
contract in one or a series of transactions in exchange for, in
recognition of, or as incentive for past or future use of an associated
crypto network or associated crypto application, or as a reward or
incentive for conducting activities primarily related to operating,
governing, or securing an associated crypto network or associated
crypto application.
---------------------------------------------------------------------------
\119\ See infra note 200 and accompanying text for a discussion
of airdrops in the context of the startup exemption.
---------------------------------------------------------------------------
[[Page 54520]]
As the proposed definition suggests, the term ``covered
transaction'' is used only in the context of the startup exemption.
While that definition would include any offer, sale, or other
distribution of a covered investment contract in reliance on the
startup exemption, it also sets forth examples of certain types of
distributions.\120\ These examples are meant to be illustrative and are
not intended to suggest that these are the only or preferred types of
offers, sales, or distributions of covered investment contracts that
can be conducted under the startup exemption.
---------------------------------------------------------------------------
\120\ See infra section II.B.2 for additional discussion of the
startup exemption and the ways in which it may be used.
---------------------------------------------------------------------------
As noted in section I above,\121\ the term ``crypto asset'' would
be defined as any digital representation of value that is recorded on a
cryptographically-secured distributed ledger.\122\ This term is used
throughout Regulation Crypto Assets and dictates the scope of the
proposed rules. For example, the investment contract safe harbor is
available only with respect to investment contracts involving crypto
assets (i.e., other types of assets may not rely on that safe harbor,
even if they are subject to an investment contract \123\).
---------------------------------------------------------------------------
\121\ See supra note 3.
\122\ The foregoing definition of ``crypto asset'' is identical
to the definition of ``Digital Asset'' in section (2)(6) of the
Guiding and Establishing National Innovation for U.S. Stablecoins
Act, Public Law 119-27, 139 Stat. 419 (July 18, 2025).
\123\ Courts have determined that other types of non-securities,
such as real estate, have been offered and sold subject to
investment contracts. See, e.g., Howey, 328 U.S. at 293 (real
estate); Cont'l Mktg. Corp. v. SEC, 387 F.2d 466 (10th Cir. 1967),
cert. denied, 391 U.S. 905 (1968) (beavers); Miller v. Cent.
Chinchilla Grp., Inc., 494 F.2d 414 (8th Cir. 1974) (chinchillas);
Glen-Arden Commodities v. Costantino, 493 F.2d 1027 (2nd Cir. 1974)
(Scotch whisky warehouse receipts).
---------------------------------------------------------------------------
The term ``crypto asset'' is embedded in the definition of
``covered investment contract,'' and, as previously noted in this
section, the startup exemption and the fundraising exemption are
available only for offers and sales of covered investment contracts.
Thus, to ensure that Regulation Crypto Assets has an appropriately
limited scope, the definition would include only those assets for which
the relevant technology (i.e., cryptographically-secured distributed
ledger) is a necessary feature.
As noted below,\124\ ``final offering circular'' means, if the
issuer is not relying on proposed 17 CFR 228.302(b) (``Rule 302(b)''),
the more recent of: (1) the current offering circular contained in a
qualified offering statement; and (2) any offering circular filed
pursuant to proposed 17 CFR 228.302(f) (``Rule 302(f)'').\125\ If,
however, the issuer is relying on Rule 302(b), the final offering
circular is the more recent of: (1) the offering circular filed
pursuant to Rule 302(f)(1) or (3); and (2) any subsequent offering
circular filed pursuant to Rule 302(f). This term is consistent with
its definition in 17 CFR 230.261(e) of Regulation A and is used
throughout the fundraising exemption.\126\
---------------------------------------------------------------------------
\124\ See infra section II.C.2.a.iii.
\125\ See proposed 17 CFR 228.302(f) (requiring, among other
things, an issuer to file an offering circular supplement disclosing
information previously omitted from the offering circular).
\126\ The terms ``offering statement'' and ``preliminary
offering circular'' also are defined in 17 CFR 230.261 for purposes
of Regulation A. Although those terms also are used in the
fundraising exemption, we believe they are sufficiently self-
explanatory such that it is unnecessary to define them for purposes
of the fundraising exemption.
---------------------------------------------------------------------------
The term ``related person'' would mean, with respect to an issuer:
founders, promoters, employees, affiliates, and any person that is a
director, officer, trustee, consultant, contractor, or advisor to the
issuer, in each case together with any immediate family member. This
term is used in proposed Rule 103 (``Disclosure requirements''). The
definition is intended to include any person that may be viewed as an
``insider'' of the issuer to ensure that investors are adequately
protected and informed (via the disclosure requirements in the proposed
rule) about those who are in the best position to influence the outcome
of the project.
Finally, the term ``subject crypto asset'' would be defined as a
crypto asset that is subject to a covered investment contract. This
definition is intended to reflect a key principle: for purposes of
Regulation Crypto Assets, the ``security'' at issue is the covered
investment contract (to which the subject crypto asset is subject)
rather than the crypto asset itself.\127\ Information regarding the
subject crypto asset, however, is likely to be material to an
investment decision in an offering of covered investment contracts.
Thus, the term ``subject crypto asset'' is referred to throughout Rule
103 (``Disclosure requirements'').
---------------------------------------------------------------------------
\127\ See 2026 Interpretation at 13717.
---------------------------------------------------------------------------
Request for Comment
1. Should we adopt Rule 100 as proposed?
2. Are there any defined terms that we either should not adopt or
should change in the final rules? If so, please identify those defined
terms along with any recommended changes to the definitions.
3. Are there additional terms used in Regulation Crypto Assets that
we should define?
4. Does the proposed definition of ``associated crypto network''
appropriately capture the particular network to which a given crypto
asset is ``native'' and on which records regarding ownership and
transactions in that crypto asset are recorded?
5. Does the definition of ``covered investment contract'' scope in
the appropriate population of securities? If not, what scope would be
more appropriate?
6. The definition of ``covered investment contract'' would exclude
investment contracts that involve crypto assets that are securities or
any other type of asset other than a non-security crypto asset. Should
we instead adopt a definition of ``covered investment contract'' that
would permit investment contracts involving assets other than a non-
security crypto asset to constitute a ``covered investment contract''
so long as they also involve non-security crypto assets? \128\ If so,
should the portion of the covered investment contract that relates to
the other type of asset be able to rely on the proposed exemptions, or
should the issuer have to seek another exemption for that portion of
the covered investment contract?
---------------------------------------------------------------------------
\128\ This could include, for example, a single investment
contract that contemplates the sale of both a crypto asset and a
share of the issuer's stock.
---------------------------------------------------------------------------
7. Would permitting other types of assets to be considered part of
a ``covered investment contract'' have implications for the proposed
approach for determining the number or purchase price of covered
investment contracts and the required disclosures about the underlying
assets in Rule 103(b)? If the rules permitted other types of assets to
be considered part of a ``covered investment contract,'' should there
be a percentage limit on the portion of the covered investment contract
that relates to other types of assets and, if so, what would be an
appropriate percentage limit?
8. Are the definitions of ``crypto asset,'' ``associated crypto
application,'' and ``associated crypto network'' both technologically
accurate today and flexible enough to accommodate technological
developments in the future? Are there other definitions of these terms
that we should use? Given how fundamental the term ``crypto asset'' is
to this proposal, is there a more specific definition we should
consider? Is the definition too narrow or too broad?
9. Do the proposed definitions of ``aggregate offering price'' and
[[Page 54521]]
``aggregate sales'' reflect appropriate methodologies for determining
the offering limits under the startup exemption and the fundraising
exemption? If not, what would be a more appropriate methodology? Should
these definitions provide greater specificity about how to convert cash
received in a foreign currency? For example, should we prescribe a
specific date and/or method of conversion? Should the issuer be
required to disclose the manner in which it converted the cash received
in a foreign currency?
10. As noted previously in this section, if covered investment
contracts are not offered for cash, the aggregate offering price or
aggregate sales would be based on the value of the consideration as
established by bona fide sales of that consideration made within a
reasonable time, or, in the absence of sales, on the fair value as
determined by an accepted standard. Should we establish a required
standard for determining fair value under Regulation Crypto Assets? If
not, why not? If so, what should that standard be? Should the standard
be U.S. Generally Accepted Accounting Principles (``U.S. GAAP'')?
Should the rule provide a list of permitted standards?
11. Does the proposed definition of ``related person'' cover the
appropriate scope of persons that may be viewed as insiders of the
issuer and therefore should be subject to the relevant disclosure
requirements in proposed Rule 103?
2. General Provisions (Rule 101)
a. Background
Many of the Commission's existing offering exemptions--including
Regulation A, Regulation D, and Regulation Crowdfunding--contain
general provisions that apply to the regulations as a whole and have
various functions, including clarifying the scope of the regulations,
the applicable liability standards, and general requirements or
conditions to relying on the exemptions, among other things. Regulation
Crypto Assets would include several of these general provisions,
consistent with other offering exemptions. To facilitate compliance, we
are proposing to consolidate these general provisions in Rule 101.
b. Proposed Rule
Rule 101 would set forth the following provisions: Rule 101(a)
(``Non-exclusive''), Rule 101(b) (``Integration''), Rule 101(c)
(``Electronic filing''), Rule 101(d) (``Insignificant deviations''),
and Rule 101(e) (``Number of units and price per unit'').
Rule 101(a) would provide that attempted compliance with any
exemption or safe harbor in Regulation Crypto Assets would not act as
an exclusive election.\129\ That is, an issuer that elects to avail
itself of Regulation Crypto Assets would not be precluded from claiming
the availability of any other exemption from section 5 of the
Securities Act or a safe harbor for which it meets the requirements.
This provision is consistent with other non-exclusivity provisions in
our existing safe harbors and exemptions, including 17 CFR 230.144A and
17 CFR 230.500(c) of Regulation D. It is intended to clarify that the
startup exemption, the fundraising exemption, and the investment
contract safe harbor all are non-exclusive provisions and that an
issuer may rely on one or more of these provisions while also relying
on other exemptions or safe harbors in our rules (including existing
exemptions and safe harbors or others within Regulation Crypto
Assets).\130\
---------------------------------------------------------------------------
\129\ Proposed 17 CFR 228.101(a).
\130\ An issuer's ability to rely on several exemptions or safe
harbors assumes that the requirements of each separate exemption or
safe harbor are satisfied. To the extent the issuer is relying on
several exemptions either at the same time or in close proximity,
the issuer also would have to ensure that it does not run afoul of
the integration doctrine. See Facilitating Capital Formation and
Expanding Investment Opportunities by Improving Access to Capital in
Private Markets, Release No. 33-10884 (Nov. 2, 2020) [86 FR 3496,
3499 (Jan. 14, 2021)] (``Facilitating Capital Formation Release'')
(``The integration doctrine seeks to prevent an issuer from
improperly avoiding registration by artificially dividing a single
offering into multiple offerings such that Securities Act exemptions
would apply to the multiple offerings that would not be available
for the combined offering.''). We discuss the integration doctrine
with respect to Regulation Crypto Assets below, in the context of
Rule 101(b).
---------------------------------------------------------------------------
Rule 101(b) would provide that issuers should refer to 17 CFR
230.152 (``Rule 152'') to determine whether offers and sales should be
integrated.\131\ This rule mirrors other rules in our existing
exemptions, including 17 CFR 227.100(e) of Regulation Crowdfunding, 17
CFR 230.251(c) of Regulation A, and 17 CFR 230.502(a) of Regulation D.
As with those provisions, this proposed rule is intended to remind
issuers of the applicability of the integration doctrine and Rule 152
if they are contemplating an offering under one or more of the
exemptions in Regulation Crypto Assets as well as other offerings under
the Securities Act.\132\ We also are proposing conforming amendments to
Rules 152(c) and (d) to clarify when an offering under an exemption in
Regulation Crypto Assets has been deemed to have commenced and when it
has been deemed to have been terminated or completed, consistent with
Rule 152's treatment of existing exemptions (including offerings under
Regulation Crowdfunding, Regulation A, and Regulation D).
---------------------------------------------------------------------------
\131\ See proposed 17 CFR 228.101(b).
\132\ See Facilitating Capital Formation Release at 3517.
---------------------------------------------------------------------------
Rule 101(c) would require documents filed or otherwise provided to
the Commission pursuant to Regulation Crypto Assets to be submitted in
electronic format by means of the Commission's Electronic Data
Gathering, Analysis, and Retrieval system (``EDGAR'') in accordance
with the electronic filing rules set forth in 17 CFR part 232
(``Regulation S-T'').\133\ This rule is consistent with 17 CFR
230.251(f) of Regulation A and is intended to ensure that issuers and
investors alike benefit from the efficiencies associated with
electronic filing on EDGAR.\134\ We also are proposing conforming
amendments to 17 CFR 232.101(a)(1) to reflect this mandatory electronic
filing requirement with respect to filings made under Regulation Crypto
Assets.\135\
---------------------------------------------------------------------------
\133\ See proposed 17 CFR 228.101(c).
\134\ See, e.g., Amendments for Small and Additional Issues
Exemptions Under the Securities Act (Regulation A), Release No. 33-
9741 (Mar. 25, 2015) [80 FR 21806, 21822 (Apr. 20, 2015)] (``2015
Regulation A Release'') (``We believe the approach to electronic
filing adopted today will be both practical and useful for issuers
of Regulation A securities, investors in such securities, and other
market participants. Issuers will be able to maintain better control
over their filing process, reduce the printing costs associated with
filings, obtain immediate confirmation of acceptance of an offering
statement, and ultimately save time in the qualification process.
Investors will gain real-time access to the information contained in
Regulation A filings.'').
\135\ See proposed 17 CFR 232.101(a)(1)(xxxix).
---------------------------------------------------------------------------
Rule 101(d) would provide that failure to comply with a term,
condition, or requirement of Regulation Crypto Assets would not result
in the loss of any exemption under Regulation Crypto Assets for any
offer or sale to a particular individual or entity, if the person
relying on the exemption establishes that: (i) the failure to comply
did not pertain to a term, condition, or requirement directly intended
to protect that particular individual or entity; (ii) the failure to
comply was insignificant with respect to the offering as a whole; \136\
and (iii) a good-faith and
[[Page 54522]]
reasonable attempt was made to comply with all applicable terms,
conditions, and requirements of Regulation Crypto Assets.\137\ This
rule is generally consistent with other rules in our existing
exemptions, including 17 CFR 227.502 of Regulation Crowdfunding, 17 CFR
230.260 of Regulation A, and 17 CFR 230.508 of Regulation D. As with
those provisions, this proposed rule is intended to allow for certain
insignificant deviations that can occur in the offering process without
causing the issuer to lose the exemption and incur the related
consequences.\138\
---------------------------------------------------------------------------
\136\ Whether a deviation from the Regulation Crypto Assets
requirements would be insignificant to the offering would depend on
the facts and circumstances of the offering and the deviation. See,
e.g., Crowdfunding, Release No. 33-9974 (Oct. 30, 2015) [80 FR
71387, 71475 (Nov. 16, 2015)] (``Crowdfunding Adopting Release'').
As noted below, proposed Rule 101(d) is modeled after similar
provisions in existing exemptions, and those provisions specify
certain deviations that would be significant. See, e.g., 17 CFR
230.260 (providing that, for purposes of Regulation A, ``any failure
to comply with Rule 251(a), (b), and (d)(1) and (3) . . . shall be
deemed to be significant to the offering as a whole''). We are not
specifying such significant deviations in Rule 101(d) because we
believe it is appropriate to assess each particular deviation based
on its particular facts and circumstances.
\137\ See proposed 17 CFR 228.101(d)(1). The rule also would
provide that a transaction made in reliance upon an exemption under
Regulation Crypto Assets must comply with all applicable terms,
conditions, and requirements of the exemption. See proposed 17 CFR
228.101(d)(2). Where an exemption is established only through
reliance upon Rule 101(d)(1), the failure to comply is nonetheless
actionable by the Commission under section 20 of the Securities Act.
See id. Finally, the rule would provide that Rule 101(d)(1) does not
preclude the Commission from bringing an enforcement action seeking
any appropriate relief or a proceeding under proposed 17 CFR 228.306
for an issuer's failure to comply with all applicable terms,
conditions, and requirements of Regulation Crypto Assets. See
proposed 17 CFR 228.101(d)(3).
\138\ See, e.g., Crowdfunding Adopting Release at 71474.
---------------------------------------------------------------------------
Finally, Rule 101(e) would specify how to determine the number of
units of covered investment contracts and the price per unit of a
covered investment contract. That rule would provide that, for purposes
of determining the number of units of covered investment contracts as
required by any rule or form in Regulation Crypto Assets, one unit of a
covered investment contract would be equivalent to one unit of the
subject crypto asset. Similarly, the price per unit of a covered
investment contract as required by any rule or form in Regulation
Crypto Assets should be determined by reference to the price per unit
of the subject crypto asset. The rule also would set forth, as an
instruction, an illustrative example stating that if an issuer sells a
covered investment contract to an investor for $100, and the covered
investment contract contemplates that the issuer will distribute 10
units of the subject crypto asset to the investor, then at the time of
the sale of the covered investment contract, the investor is deemed to
have purchased 10 units of the covered investment contract at a price
of $10 per unit of covered investment contract. We believe that
specifying how to measure the number of units of covered investment
contracts and determine the price per unit of a covered investment
contract would facilitate compliance and provide clarity for market
participants.
Request for Comment
12. Should we adopt Rule 101 as proposed?
13. The provisions in proposed Rule 101 would be similar to the
general provisions in several of our existing offering exemptions. Are
there any provisions in Rule 101 that we either should not adopt or
that we should change in the final rules? If so, please identify those
provisions along with any recommended changes to the provisions or an
explanation as to why those provisions should not be adopted.
14. Are there any other general provisions that should apply to
Regulation Crypto Assets? Should any of the proposed general provisions
not apply to one or more of the proposed exemptions or the safe harbor
in Regulation Crypto Assets?
15. Should we adopt Rule 101(a) as proposed? Alternatively, should
any of the proposed exemptions or the safe harbor in Regulation Crypto
Assets act as an exclusive election?
16. Would Rule 101(b) be helpful to remind issuers of the
applicability of the integration doctrine and Rule 152? For example,
would Rule 101(b)'s reference to Rule 152 provide clarity regarding
when offers and sales conducted pursuant to the exemptions in
Regulation Crypto Assets will be integrated?
17. Does Rule 101(c)'s reference to the requirements of Regulation
S-T help to clarify issuers' electronic filing obligations?
18. Should Rule 101(d) deem the failure to comply with any
particular rule in Regulation Crypto Assets to be significant to the
offering as a whole? If so, which rules should be identified in Rule
101(d)?
19. Should we specify how to measure the number of units of covered
investment contracts and determine the price per unit of a covered
investment contract as proposed in Rule 101(e)? Is the proposed method
of determining the number of units of covered investment contracts
appropriate? If not, what would be a better method? Should the price
per unit of a covered investment contract be determined by reference to
the price per subject crypto asset, as proposed? If not, how should the
price per unit be determined?
3. Inflation Adjustment for Offering Limits (Rule 102)
a. Background
As discussed in more detail in sections II.B and II.C, the startup
exemption and the fundraising exemption each contain offering limits.
Those limits are expressed in dollar amounts and reflect our
preliminary determination about amounts that would be appropriate to
meet issuers' capital raising needs while maintaining adequate investor
protections. Those amounts are based on the specific purposes of each
exemption as well as current economic and market conditions. We
recognize, however, that over time, the efficacy of those dollar limits
could be diluted as a result of the effects of inflation. We are
proposing Rule 102 to address this possibility by setting up a
streamlined process for future inflation adjustments.
b. Proposed Rule
Under Rule 102, the Commission would periodically, but not less
than once every five years,\139\ adjust the offering amount limitations
in the startup exemption and the fundraising exemption to reflect any
changes in the Consumer Price Index for All Urban Consumers published
by the Bureau of Labor Statistics of the Department of Labor.\140\ This
proposed rule is intended to establish a process whereby the proposed
offering limits would be adjusted on an ongoing, predetermined basis to
maintain their current effectiveness without requiring the Commission
to engage in notice-and-comment rulemaking each time it makes those
routine adjustments. We would expect to implement the adjustment via a
direct-to-final rulemaking. If the Commission desired to make other
adjustments to the offering limits, such as lowering the limits or
raising them
[[Page 54523]]
beyond the effects of inflation, it could do so at any time through
notice-and-comment rulemaking.
---------------------------------------------------------------------------
\139\ For consistency with Titles I and III of the Jumpstart Our
Business Startups Act (``JOBS Act''), Public Law 112-106, 126 Stat.
306 (2012), we are proposing that the Commission adjust the offering
amount limitations every five years in manner consistent with the
adjustment for emerging growth companies, see 15 U.S.C. 77b(a)
(Securities Act section 2(a)(19)) and 15 U.S.C. 78c(a) (Exchange Act
section 3(a)(80)), and Regulation Crowdfunding companies, see 15
U.S.C. 77d(a)(6) (Securities Act section 4(a)(6)) and 15 U.S.C. 77d-
1(h)(1) (Securities Act section 4A(h)(1)). See also Inflation
Adjustment under Titles I and III of the JOBS Act, Release No. 33-
11098 (Sept. 9, 2022) [87 FR 57394 (Sept. 20, 2022)].
\140\ See proposed 17 CFR 228.102. The Consumer Price Index for
All Urban Consumers is the statistical metric developed by the
Bureau of Labor Statistics of the Department of Labor to monitor the
change in the price of a set list of products. This index represents
changes in prices of all goods and services purchased for
consumption by urban households. See ``Consumer Price Index,''
available at https://bls.gov/cpi.
---------------------------------------------------------------------------
Request for Comment
20. Should we adopt Rule 102 as proposed?
21. Are there any portions of Rule 102 that we either should not
adopt or that we should change in the final rules? If so, please
identify those portions of the rule along with any recommended changes.
22. Would it be more appropriate for the Commission to consider ad
hoc adjustments to the offering limits through notice-and-comment
rulemaking rather than establishing an ongoing, predetermined basis for
making such adjustments?
23. Is the proposed frequency of the Commission's adjustments under
this rule (periodically, but no less than once every five years)
appropriate? Should these adjustments occur more or less frequently?
24. Should the Commission adjust the offering limits to reflect
factors other than, or in addition to, changes in the Consumer Price
Index for All Urban Consumers? If so, what other factors would be
appropriate to consider?
25. Is the proposed rule's reference to ``changes in the Consumer
Price Index for All Urban Consumers published by the Bureau of Labor
Statistics of the Department of Labor'' an appropriate measure for
inflation? If not, what other measure(s) should we use?
4. Disclosure Requirements (Rule 103)
a. Background
A prominent theme in submissions to the Crypto Task Force as well
as other public commentary is that the Commission's existing disclosure
requirements do not elicit the types of information that are likely to
be material to investors in covered investment contracts.\141\ This
includes the disclosure requirements in 17 CFR part 229 (``Regulation
S-K'') \142\ and Form 1-A.\143\ In the past, the Commission has adopted
Regulation S-K subparts tailored to specific types of issuers and
transactions, such as Regulation M-A (mergers and acquisitions),\144\
Regulation AB (asset-backed securities),\145\ subpart 1200 (oil and gas
producing activities),\146\ subpart 1300 (mining operations),\147\
subpart 1400 (banks and savings and loans),\148\ and subpart 1600
(Special Purpose Acquisition Companies).\149\ To date, however, the
Commission has not considered amendments to disclosure requirements
specifically applicable to offerings of covered investment contracts.
---------------------------------------------------------------------------
\141\ See, e.g., letters from a16z 2; a16z 3; AIMA; Anderson;
Broadridge; L. Cohen; Coinbase; CoinList; Zack Dane (Feb. 23, 2025)
(``Z. Dane''); Figure Markets; CrowdCheck Law; J. Kim; OpenZeppelin
(Apr. 16, 2025) (``OpenZeppelin''); G. Shapiro; SIFMA 2; TDC 2;
tZero Group, Inc. (Mar. 5, 2025) (``tZero''); see also LeXpunK,
Regulation X Proposal: An Exempt Offering Framework for Token
Issuances (Apr. 25, 2022) (``LeXpunK Regulation X Proposal''),
available at https://github.com/LeXpunK-Army/Reg-X-Proposal-An-Exempt-Offering-Framework-for-Token-Issuances/blob/main/Lexpunk%20Reg%20X%20Proposal%20FINAL%20(4.25).pdf; Justin Slaughter,
Katie Biber, and Rodrigo Seira, The Current SEC Disclosure Framework
Is Unfit for Crypto (Apr. 20, 2023), available at https://paradigm.xyz/2023/04/secs-path-to-registration-part-iii.
\142\ Regulation S-K was created as part of the integrated
disclosure initiative to be the repository for the non-financial
statement disclosure to be included in Securities Act registration
statements and Exchange Act periodic reports. See Adoption of
Integrated Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47
FR 11380 (Mar. 16, 1982)]; see also U.S. Securities and Exchange
Commission, Report on Review of Disclosure Requirements in
Regulation S-K (Dec. 2013), available at https://sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf.
\143\ Form 1-A sets forth the form and content requirements
included in Regulation A offering statements. See Form 1-A,
Regulation A Offering Statement Under the Securities Act of 1933,
available at https://sec.gov/files/form1a.pdf.
\144\ See 17 CFR 229.1000 through 17 CFR 229.1016.
\145\ See 17 CFR 229.1100 through 17 CFR 229.1125.
\146\ See 17 CFR 229.1200 through 17 CFR 229.1208.
\147\ See 17 CFR 229.1300 through 17 CFR 229.1305.
\148\ See 17 CFR 229.1400 through 17 CFR 229.1406.
\149\ See 17 CFR 229.1600 through 17 CFR 229.1610.
---------------------------------------------------------------------------
Several commenters expressed concern that the Commission's existing
disclosure requirements are ``inflexible,'' requiring disclosure on
topics that are not applicable or relevant to offerings of covered
investment contracts.\150\ Commenters also stated that existing
disclosure frameworks do not elicit disclosure on a number of topics
that are relevant to investors in covered investment contract
offerings, including the technical, governance, and economic
characteristics of crypto assets; description of the project; crypto
asset allocations, liquidity, and tradability; crypto asset and network
security; and unique technological, market, and redemption risks.\151\
In sum, the existing disclosure frameworks, when applied to covered
investment contract offerings, may compel issuers to incur the costs of
providing ultimately immaterial disclosures while, at the same time,
failing to provide investors consistently with the types of information
most important to their investment decisions. To address these
concerns, we are proposing disclosure principles that are intended to
be tailored to covered investment contract offerings and provide
investors in these offerings with the information they need to make
informed investment decisions.
---------------------------------------------------------------------------
\150\ See supra section I.B.3; see also letter from a16z 3
(stating that ``line item disclosures called for by the relevant
forms and by Regulation S-K and Regulation S-X may not always be
material to purchasers of crypto assets'' and ``Regulation A's
disclosure framework is modeled on traditional corporate equity
offerings and is not well suited to address the unique features of
certain crypto assets'').
\151\ See, e.g., letters from a16z 3 (stating that flexible,
principles-based disclosure ``would result in more concise,
actionable disclosures that better promote informed decision-making
and investor protection''); CfPA; GDCA; OpenZeppelin (recommending
disclosure of third-party security audits and the methodology used
in those audits); SIFMA 2; TDC 2.
---------------------------------------------------------------------------
In developing the proposed disclosure requirements in Rule 103, we
have considered a broad range of sources. The proposed requirements
were informed, in part, by the Division of Corporation Finance's April
2025 statement titled, ``Offerings and Registrations of Securities in
the Crypto Asset Markets,'' which ``reflect[ed] [the staff's]
observations regarding disclosures provided in response to existing
disclosure requirements.'' \152\ We also considered recommendations in
academic research, public commentary, and crypto asset safe harbor
proposals from market participants.\153\ Finally, a number of
commenters, in their written input to the Crypto Task Force, included
detailed discussion of evolving disclosure best practices and
recommendations for disclosure tailored to issuers and offerings of
covered investment contracts.\154\
---------------------------------------------------------------------------
\152\ See CF Disclosure Statement, supra note 38.
\153\ See Chris Brummer, Trevor I. Kiviat, and Jai Massari, What
Should Be Disclosed in an Initial Coin Offering?, in Brummer, ed.,
Cryptoassets: Legal, Regul., and Monetary Persps. (2019); Chris
Brummer, Disclosure, Dapps, and DeFi, 5 Stan. J. Blockchain L. &
Pol'y 137 (2022); Chris Brummer, A Developer Theory of Disclosure
(Spring 2025) available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5137972; LeXPunK Regulation X Proposal, supra
note 141.
\154\ See, e.g., letters from a16z 3; AIMA; CfPA; Coinbase;
GDCA; SIFMA 2; TDC 2.
---------------------------------------------------------------------------
Some common themes emerged from those external perspectives.
Notably, there appeared to be some consensus regarding the key
categories of information that should be required under a tailored
disclosure regime, including information about the following: (1) the
covered investment contract offering; (2) management, related persons,
and other ``material
[[Page 54524]]
participants''; (3) the associated crypto network or associated crypto
application, including the plan of development and the intended
architecture, network protocols and functionality, and security and
source code; (4) the subject crypto asset, including total supply,
distribution, and lockup information; (5) the governance of the
associated crypto network or associated crypto application; (6) the
subject crypto asset's economics and its ``ecosystem''; and (7) the
material risks relating to the covered investment contract, the subject
crypto asset, and associated crypto network or application. Proposed
Rule 103 is intended to reflect these key categories as well as
additional issuer-, security-, and offering-level information that we
believe is necessary to help ensure investors in a covered investment
contract offering are appropriately informed.
b. Proposed Rule
Based on the above considerations, Rule 103 would set forth
principles-based disclosure requirements with respect to offerings of
covered investment contracts. We believe these disclosure requirements
would: (1) elicit material information for investors in these
offerings, (2) result in disclosures that are appropriately tailored to
reflect covered investment contract issuers' particular facts and
circumstances, (3) help investors compare covered investment contracts
and covered investment contract offerings, and (4) generally reduce
disclosure costs and compliance burdens (as compared to covered
investment contract issuers' costs and burdens when trying to comply
with existing disclosure requirements).
Rule 103(a) would set forth general disclosure principles that
issuers should follow when responding to the disclosure requirements in
Rule 103(b). Rule 103(a) would state that information provided under
Regulation Crypto Assets should be tailored to the issuer, the subject
crypto asset, and the associated crypto network or associated crypto
application and should be presented in clear, concise, and
understandable language, without overly relying on technical
terminology or jargon.\155\ When preparing this information, each
issuer would be required to tailor its disclosure based on its own
facts and circumstances. Information provided would also be required to
address the current stage of development of the issuer, the subject
crypto asset, and the associated crypto network or associated crypto
application and should clearly delineate any forward-looking or future
plans of development. Information provided would be required to be
consistent with the issuer's public statements in its established
public communication channels (such as its website or official social
media accounts) and promotional materials (such as whitepapers \156\)
relating to material aspects of the issuer, the subject crypto asset,
and the associated crypto network or associated crypto application.
Finally, disclosure would not be required to be provided where a
particular disclosure requirement is not applicable, or responsive
information is unknown or not reasonably available.
---------------------------------------------------------------------------
\155\ See proposed 17 CFR 228.103(a).
\156\ The term ``whitepaper'' generally refers to a document
that describes the technical aspects of a crypto asset project
(i.e., a crypto asset and the associated crypto network or
associated crypto application) along with other relevant details.
See President's Working Group Report at 31 (``Projects often
disclose how their token issuance process occurs in their
whitepaper, which describes technical aspects of the project,
contractual rights of the token holders, and other pertinent
details.'').
---------------------------------------------------------------------------
Rule 103(b) would set forth the disclosure requirements that
issuers would be required to comply with when relying on the startup
exemption or the fundraising exemption.\157\ These disclosure
requirements would cover non-financial, narrative information relating
to the key aspects of a covered investment contract offering. The
disclosure requirements would be organized into the following topics:
(1) covered investment contract; (2) offering; (3) subject crypto
asset; (4) management, related persons, and conflicts of interest; (5)
associated crypto network/application; plan of development; (6)
security; source code; (7) subject crypto asset economics and
allocation; (8) governance; (9) subject crypto asset ecosystem; and
(10) risk factors.\158\ Each of those topics is discussed in more
detail below.
---------------------------------------------------------------------------
\157\ See proposed 17 CFR 228.103(b).
\158\ Information regarding the issuer will be included in Form
NOR for issuers relying on the startup exemption and in Part II of
Form 1-CRYPTO for issuers relying on the fundraising exemption.
Descriptions of proposed Form NOR and proposed Form 1-CRYPTO would
be codified at 17 CFR 239.605 and 17 CFR 239.600, respectively. See
infra section II.B for a more detailed discussion of the startup
exemption and Form NOR. See infra section II.C for a more detailed
discussion of the fundraising exemption and Form 1-CRYPTO.
---------------------------------------------------------------------------
In addition, as noted previously in this section, the disclosure
requirements in Rule 103(b) would be principles-based requirements.
That is, the rule would require the issuer to describe the material
aspects of the applicable topic without specifying detailed information
that must be provided.\159\ This principles-based approach is intended
to give issuers the flexibility to tailor the disclosure to their
particular facts and circumstances (and avoid compelling disclosure of
irrelevant information) while still eliciting material information for
investors. It also is intended to provide sufficient flexibility so
that the proposed rules can accommodate potential future developments
in the crypto asset markets and thereby avoid the need for the
Commission to continually revisit and update the disclosure
requirements.
---------------------------------------------------------------------------
\159\ In contrast to some of the other subparagraphs, Rules
103(b)(1) and (2) would enumerate certain information that an issuer
must describe with respect to the covered investment contract and
the offering. These enumerated items represent key details that we
believe are necessary for investors to make informed investment
decisions about the covered investment contract and the offering.
---------------------------------------------------------------------------
We recognize that some market participants may prefer a different
approach with respect to the proposed disclosure requirements. For
example, some investors may prefer more prescriptive disclosure
requirements that give issuers less flexibility but elicit more
consistent and comparable disclosures. In addition, notwithstanding the
flexibility provided by the principles-based approach, some issuers may
prefer that we set forth detailed disclosure requirements to help them
more easily determine what information they must provide. Although we
believe our proposed requirements strike the appropriate balance, we
seek comment on potential alternative approaches, including replacing
the principles-based approach with more prescriptive disclosure
requirements or, alternatively, supplementing the principles-based
requirements with non-exclusive examples of disclosure that may be
responsive.
i. Paragraph (b)(1)--Covered Investment Contract
Rule 103(b)(1) would require the issuer to provide a description of
the material terms of the covered investment contract, including the
issuer's representations or promises to engage in essential managerial
efforts under the covered investment contract and its progress with
respect to such representations or promises, a purchaser's obligations
under the covered investment contract, any conditions to the covered
investment contract, and any other material terms. Because the covered
investment contract would be the security being offered under these
exemptions, it is important for issuers to provide
[[Page 54525]]
investors with information about the material terms of that security.
In addition, because the existence of the covered investment
contract depends on the issuer's representations or promises to engage
in essential managerial efforts,\160\ we believe that requiring
disclosure of these representations or promises may help investors and
other market participants determine the circumstances under which the
covered investment contract may cease to exist. Furthermore, requiring
the issuer to provide disclosure regarding its progress with respect to
such representations or promises will help investors and other market
participants assess, on an ongoing basis, the likelihood that the
issuer will satisfy those representations or promises. We also expect
issuers may refer to this disclosure in determining whether they have
satisfied the conditions of the investment contract safe harbor,
including pursuant to their transition report obligations under the
startup exemption and the fundraising exemption.
---------------------------------------------------------------------------
\160\ See 2026 Interpretation at 13721-22.
---------------------------------------------------------------------------
In the 2026 Interpretation, the Commission provided guidance
regarding the types of efforts that may be regarded as essential
managerial efforts. For example, the Commission noted that
representations or promises by an issuer conveyed to purchasers to
develop and achieve functionality for a non-security crypto asset and/
or develop an associated crypto network or associated crypto
application together with a business plan containing detailed
milestones, a timeline, information about personnel, sources of funding
and other resources needed to meet those milestones, and an explanation
of how holders of the non-security crypto asset will profit from those
efforts, likely would create a reasonable expectation of profits
because they speak directly to those essential managerial efforts that
affect the failure or success of the project.\161\ In contrast, the
Commission stated that representations or promises that are vague or
contain no semblance of an actionable business plan, such as those
lacking milestones, funding, or other plans for needed resources,
likely would not create a reasonable expectation of profits.\162\
---------------------------------------------------------------------------
\161\ See id. at 13721-22.
\162\ See id.
---------------------------------------------------------------------------
We further note that an issuer may make other representations or
promises to take certain actions that would not constitute essential
managerial efforts. For example, once an issuer has satisfied its
representations or promises to engage in essential managerial efforts
under the covered investment contract, the associated crypto network or
associated crypto application may be functional. Once such network or
application is functional, it is our view that services to secure,
maintain, improve, or enhance such a network or application or its
functionality, or to facilitate network effects, whether through
sponsoring or funding development projects or other similar activities,
would not constitute essential managerial efforts. As a result, any
representations or promises (whether by the issuer or another party) to
provide or continue to provide or arrange for the provision of such
services after the network or application is functional would not
satisfy the Howey test. In this regard, rather than deriving its value
from the essential managerial efforts of the issuer, the relevant
crypto asset should derive its value from the programmatic operation of
the associated crypto network or associated crypto application, as well
as the market's supply and demand dynamics with respect to such crypto
asset. Moreover, after the associated crypto network or associated
crypto application is functional, and the crypto asset can be used in
accordance with the programmatic utility of such network or
application, such services (whether provided or coordinated by the
issuer or another party) would no longer be among the undeniably
significant ones because they would not affect the failure or success
of the associated crypto network or associated crypto application.
Rather, the activities of and contributions made by many parties
(including, for example, the issuer, other developers, validators and/
or miners, liquidity providers, users, and holders of the crypto asset)
would affect the failure or success of the associated crypto network or
associated crypto application after such network or application is
functional. Prior to functionality, however, such services are provided
or coordinated by the issuer and likely constitute essential managerial
efforts.
ii. Paragraph (b)(2)--Offering
Rule 103(b)(2) would require the issuer to provide a description of
the material terms of the offering, including:
The number of units of covered investment contracts to be
offered, the purchase price per unit (or how the purchase price per
unit will be determined),\163\ the duration of the offering period, and
any qualifications for or restrictions on purchasers in the offering;
---------------------------------------------------------------------------
\163\ See proposed 17 CFR 228.101(e) (specifying how to
determine the number of units of covered investment contracts and
the price per unit of a covered investment contract).
---------------------------------------------------------------------------
Any material agreements in furtherance of the distribution
of covered investment contracts in the offering;
The estimated net offering sale proceeds and expenses to
be paid with the offering proceeds;
The intended use of proceeds from any sales in the
offering; and
The website address at which any whitepapers or other
offering materials that the issuer prepared or distributed, either
publicly or to prospective purchasers in connection with the offering,
are publicly accessible, free of charge.\164\
---------------------------------------------------------------------------
\164\ See proposed 17 CFR 228.103(b)(2).
---------------------------------------------------------------------------
As noted in section II.A.4.a above, we believe this is fundamental
information regarding the offering that should be provided to investors
to support their ability to make a well-informed investment decision.
iii. Paragraph (b)(3)--Subject Crypto Asset
Rule 103(b)(3) would require the issuer to provide a description of
the name and the material aspects of the subject crypto asset.\165\ We
expect that the value of the covered investment contract that is being
offered and sold often will depend, in large part, on investors'
perception of the subject crypto asset. Thus, the proposed rule seeks
to elicit material information regarding the subject crypto asset so
that an investor can make an informed investment decision with respect
to the covered investment contract.
---------------------------------------------------------------------------
\165\ See proposed 17 CFR 228.103(b)(3).
---------------------------------------------------------------------------
iv. Paragraph (b)(4)--Management, Related Persons, and Conflicts of
Interest
Rule 103(b)(4) would require the issuer to provide a description
of: (i) the material aspects of the issuer's management and related
persons; (ii) the material aspects of any conflicts of interest or
related person transactions involving the issuer; and (iii) whether
related persons are subject to any transfer or resale restriction(s)
with respect to the covered investment contract or subject crypto asset
and, if so, the material terms of such restriction(s).\166\ As noted in
section II.A.4.a above, information about management, related persons,
and other ``material participants'' is one of the key categories of
information that several commenters stated would be important for a
disclosure framework tailored to
[[Page 54526]]
covered investment contracts. We agree that a covered investment
contract issuer should provide information to investors regarding these
persons because they are in the best position to influence the outcome
of the project. As such, information about these persons' expertise and
professional background, as well as arrangements that may affect their
incentives with respect to the project, is likely to be material to
investors. The proposed rule is intended to elicit information about
those persons in a principles-based manner.
---------------------------------------------------------------------------
\166\ See proposed 17 CFR 228.103(b)(4).
---------------------------------------------------------------------------
In addition, covered investment contracts sold pursuant to one of
the exemptions in Regulation Crypto Assets would not be restricted
securities for purposes of the Federal securities laws. Absent a
contractual or other applicable holding period or restriction,
therefore, purchasers of covered investment contracts issued under the
proposed exemptions would be able to sell those securities immediately
upon acquisition. Several commenters expressed concerns about
information asymmetries and misaligned incentives between issuer
``insiders'' and other investors, especially during the period after
which the issuer has offered and sold covered investment contracts but
before the issuer has fulfilled its representations or promises to
engage in essential managerial efforts under the covered investment
contract.\167\ These commenters recommended that any exemption include
limitations on insider sales of covered investment contracts in order
to ensure investors are appropriately protected and insiders'
incentives remain aligned with other investors.\168\
---------------------------------------------------------------------------
\167\ See, e.g., letters from a16z 2; a16z 3 (``While an initial
development team retains control of a network token and its
underlying network, tokenholders are at the greatest risk of harm
stemming from information asymmetries about a project, and the trust
dependencies of such network token may be similar to that of an
ordinary security.''); Coinbase.
\168\ See, e.g., letters from a16z 3; Coinbase (recommending
``[o]ther potential considerations that would apply conditions to
[an] exemption or safe harbor,'' including ``[a] limitation on token
sales by the development team and related parties for their own
account until the network or protocol has become sufficiently
decentralized. Such a limitation would help ensure the issuer,
development team and related persons have continued economic
incentive to complete the project.'').
---------------------------------------------------------------------------
We recognize that investor protection risks related to information
asymmetries and misaligned incentives between insiders and investors
may be heightened with respect to covered investment contract offerings
due to the unique nature of the representations or promises in these
offerings.\169\ The proposed disclosure requirement regarding related
person resale or transfer restrictions is intended to address these
concerns by giving investors the information they need to determine
whether there are risks associated with the issuer's related persons
and, if so, whether the issuer has taken steps to mitigate those risks.
---------------------------------------------------------------------------
\169\ For example, covered investment contract issuers often
represent or promise to decentralize the associated crypto network
or associated crypto application, at which point the issuer and its
insiders may not have control over, or the ability to profit from,
such network or application or the subject crypto asset. This
situation could incentivize insiders to delay such decentralization
(to the detriment of investors) to the extent they seek to retain
their leverage to profit from such network, application, or subject
crypto asset.
---------------------------------------------------------------------------
v. Paragraph (b)(5)--Associated Crypto Network/Application; Plan of
Development
Rule 103(b)(5) would require the issuer to provide a description of
the material aspects of the associated crypto network or associated
crypto application and the issuer's plan of development with respect to
the associated crypto network or associated crypto application,
including the issuer's progress with respect to its plan of
development. As noted in section II.A.4.a above, information about the
associated crypto network or associated crypto application, including
architecture, network protocols and functionality, and security and
source code (the latter two of which are discussed in the next section)
is one of the key categories of information that several commenters
stated would be important for a disclosure framework tailored to
covered investment contracts. We agree that a covered investment
contract issuer should provide this information to investors because
this information will inform investors' expectations as to the intended
future state of the project (which, in turn, will help the investor
evaluate the potential future value of the subject crypto asset). In
addition, in many cases, the associated crypto network or associated
crypto application will not yet have been developed at the time of the
covered investment contract offering (in which case the funds from the
offering may be funding development of that network or application). In
those cases, information regarding the plan of development may be
material for investors as they assess the likelihood of success for the
project, as well as the expected timing and progress in connection with
the plan of development, both at the time of the offering and on an
ongoing basis. This proposed rule is intended to elicit that
information in a principles-based manner.
vi. Paragraph (b)(6)--Security; Source Code
Rule 103(b)(6) would require a description of the material aspects
of the security of the subject crypto asset and the associated crypto
network or associated crypto application and, to the extent the issuer
has made it publicly available, the website address at which the code
underlying the associated crypto network or associated crypto
application (also referred to as ``source code'') is accessible.\170\
As noted in section II.A.4.a above, information about the associated
crypto network or associated crypto application, including
architecture, network protocols and functionality, and security and
source code, is one of the key categories of information that several
commenters stated would be important for a disclosure framework
tailored to covered investment contracts.
---------------------------------------------------------------------------
\170\ See proposed 17 CFR 228.103(b)(6).
---------------------------------------------------------------------------
We agree that a covered investment contract issuer should provide
this information to investors because this information would help
investors to independently assess whether the associated crypto network
or associated crypto application may operate consistently with the
issuer's description. In addition, this information would help
investors assess potential cybersecurity risks associated with the
associated crypto network or associated crypto application. This
proposed rule is intended to elicit information regarding the security
and source code in a principles-based manner.
vii. Paragraph (b)(7)--Subject Crypto Asset Economics and Allocations
Rule 103(b)(7) would require the issuer to provide a description of
the material aspects of the subject crypto asset's economics and
allocations, including: (1) the subject crypto asset's supply, pricing,
lockups, distribution methods, holdings by related persons, and release
schedules; (2) the associated crypto network or associated crypto
application's mechanisms for generating and destroying subject crypto
assets; and (3) methods to verify the subject crypto asset's
transaction history.\171\ As noted in section II.A.4.a above,
information about the subject crypto asset economics and allocations is
one of the key categories of information that several commenters stated
would be important for a disclosure framework tailored to covered
investment
[[Page 54527]]
contracts. We agree that a covered investment contract issuer should
provide this information to investors because this information would
help investors assess the total number of subject crypto assets that
may be outstanding at a given point in time, which bears directly on
the value of the subject crypto asset (and, therefore, the value of the
covered investment contract). This proposed rule is intended to elicit
that information in a principles-based manner.
---------------------------------------------------------------------------
\171\ See proposed 17 CFR 228.103(b)(7).
---------------------------------------------------------------------------
viii. Paragraph (b)(8)--Governance
Rule 103(b)(8) would require the issuer to provide a description of
the material aspects of the subject crypto asset's and associated
crypto network's or associated crypto application's governance
mechanisms, smart contract governance mechanisms, and permissions.\172\
As noted in section II.A.4.a above, information regarding the
governance of the associated crypto network or associated crypto
application is one of the key categories of information that several
commenters stated would be important for a disclosure framework
tailored to covered investment contracts. We agree that a covered
investment contract issuer should provide this information to investors
because this information would help investors understand the conditions
under which changes may be made to the subject crypto asset or the
associated crypto network or associated crypto application and who may
be empowered to make such changes. Such changes could relate to the
aspects of the subject crypto asset that are relevant to investors'
valuation of the subject crypto asset and, ultimately, the covered
investment contract. This proposed rule is intended to elicit that
information in a principles-based manner.
---------------------------------------------------------------------------
\172\ See proposed 17 CFR 228.103(b)(8).
---------------------------------------------------------------------------
ix. Paragraph (b)(9)-Subject Crypto Asset Ecosystem
Rule 103(b)(9) would require the issuer to provide a description of
the material aspects of the subject crypto asset's current and
anticipated ecosystem (i.e., the system or network of contributors or
participants that support and interact with the subject crypto asset
and associated crypto network or associated crypto application),
``onchain'' and ``offchain,'' including information regarding the
technology infrastructure, types of participants, and other parties and
systems using the subject crypto asset and the associated crypto
network or associated crypto application.\173\ As noted in section
II.A.4.a above, information about the subject crypto asset's ecosystem
is one of the key categories of information that several commenters
stated would be important for a disclosure framework tailored to
covered investment contracts. We agree that a covered investment
contract issuer should provide this information to investors because
this information would help investors understand potential activity
with respect to, and uses of, the subject crypto asset, which may help
inform investors' expectations with respect to potential demand for the
subject crypto asset. Investors' expectations regarding demand for the
subject crypto asset may be relevant to their valuations of the subject
crypto asset and, ultimately, the covered investment contract. This
proposed rule is intended to elicit that information in a principles-
based manner.
---------------------------------------------------------------------------
\173\ See proposed 17 CFR 228.103(b)(9).
---------------------------------------------------------------------------
x. Paragraph (b)(10)-Risk Factors
Finally, Rule 103(b)(10) would require the issuer to provide a
description, in short, concise statements, of the material factors that
make an investment in the offering speculative or risky, including
risks related to the covered investment contract, the issuer, the
subject crypto asset, and the associated crypto network or associated
crypto application.\174\ As noted in section II.A.4.a above,
information about the material risks relating to the covered investment
contract, the subject crypto asset, and associated crypto network or
application is one of the key categories of information that several
commenters stated would be important for a disclosure framework
tailored to covered investment contracts. We agree that a covered
investment contract issuer should provide this information to investors
because this information would help investors assess the risks
associated with investing in the covered investment contracts. This
proposed rule is intended to elicit that information in a principles-
based manner.
---------------------------------------------------------------------------
\174\ See proposed 17 CFR 228.103(b)(10).
---------------------------------------------------------------------------
The rule also would provide that this description must avoid
generalized statements and include only factors specific to the covered
investment contract, the issuer, the subject crypto asset, and the
associated crypto network or associated crypto application. This is
intended to avoid boilerplate disclosure and help ensure that
information disclosed under this rule is important to an investor's
investment decision.
Request for Comment
26. Should we adopt Rule 103 as proposed?
27. Are there any specific disclosure requirements in Rule 103 that
we either should not adopt or that we should change in the final rules?
If so, please identify those provisions along with any recommended
changes to the provisions.
28. Are there any other disclosure requirements that we should
specify in Rule 103?
29. In lieu of the principles-based requirements, should we adopt
more prescriptive disclosure requirements? Alternatively, should the
final rules supplement the principles-based requirements with non-
exclusive examples of disclosure that may be responsive?
30. Rather than adopting more prescriptive requirements or
including examples of disclosure that may be responsive to the
principles-based requirements, should we include more detailed guidance
in the adopting release regarding what types of information may be
responsive to the principles-based requirements?
31. Are there any material terms in the description of the offering
we should add, eliminate, or revise? If so, please identify the term
and the reasons for doing so.
32. Should we prescribe the methods by which issuers publicly
provide or otherwise deliver to investors the disclosures in Rule 103?
If so, what methods should the rules prescribe?
33. Will the proposed requirements result in disclosures that
investors (including retail investors) will be able to understand and
use to make informed investment decisions? If not, how should we revise
the requirements to better ensure investors (including retail
investors) will be able to understand the resulting disclosures and use
them to make informed investment decisions?
34. Do related persons of covered investment contract issuers pose
heightened risks with respect to information asymmetries and misaligned
incentives such that the disclosure of any resale or transfer
restrictions is warranted? Are there other risks that such insiders
pose that this disclosure would help address?
35. Instead of only requiring disclosure relating to any related
person resale or transfer restrictions, should we require that issuers
establish a specific minimum holding period for related persons, such
as a one-year holding period, as a condition to relying on the proposed
exemptions? Rather than a time-based holding period, should we
[[Page 54528]]
base any holding period on the achievement of certain development
milestones with respect to the associated crypto network or associated
crypto application? Are there other resale or transfer restrictions
that we should apply with respect to related persons as conditions to
the proposed exemptions in Regulation Crypto Assets?
36. How should we modify proposed Rule 103(b)(10), if at all, to
help ensure that the resulting risk factor disclosure will address only
material risks to the issuer and avoid boilerplate disclosures?
5. Disqualification (Rule 104)
a. Background
Many of the Commission's existing offering exemptions--including
Regulation A, Regulation D, and Regulation Crowdfunding--contain
disqualification provisions.\175\ These provisions generally
``disqualify securities offerings from reliance on exemptions if the
issuer or other relevant persons . . . have been convicted of, or are
subject to court or administrative sanctions for, securities fraud or
other violations of specified laws.'' \176\ Disqualification provisions
are intended to protect investors by reducing the risk of fraud in
connection with exempt offerings that include such provisions.\177\ As
such, we believe it is important to include a disqualification
provision (proposed Rule 104) in Regulation Crypto Assets to help
ensure that investors in covered investment contracts offerings are
protected from fraud.
---------------------------------------------------------------------------
\175\ See, e.g., 17 CFR 227.503 (setting forth the
disqualification provision under Regulation Crowdfunding); 17 CFR
230.262 (setting forth the disqualification provision under
Regulation A); 17 CFR 230.506(d) (setting forth the ``bad actor''
disqualification provision under Regulation D).
\176\ Disqualification of Felons and Other ``Bad Actors'' from
Rule 506 Offerings, Release No. 33-9414 (July 10, 2013) [78 FR
44730, 44731 (July 24, 2013)].
\177\ See, e.g., Crowdfunding Adopting Release at 71520-21
(``This will help reduce the potential for fraud in the market for
such offerings, which in turn may reduce the cost of raising capital
to issuers that rely on section 4(a)(6), to the extent that
disqualification standards lower the risk premium associated with
the presence of bad actors in securities offerings.'').
---------------------------------------------------------------------------
b. Proposed Rule
Rule 104 would provide that the exemptions in Regulation Crypto
Assets are not available if the issuer or any person listed in Rule
262(a) \178\ would be subject to disqualification under Rule 262. Rule
262, in turn, sets forth various disqualifying actions or events,\179\
as well as exceptions from those disqualifying actions or events.\180\
Both the disqualifying actions and events, as well as the exceptions
from the disqualifying actions or events, would apply under Rule 104.
Additionally, requests for waivers of disqualification, where
appropriate, would remain available to the same extent they are
available under Rule 262.\181\
---------------------------------------------------------------------------
\178\ In addition to the issuer, Rule 262(a) lists the following
persons: any predecessor of the issuer; any affiliated issuer; any
director, executive officer, other officer participating in the
offering, general partner or managing member of the issuer; any
beneficial owner of 20 percent or more of the issuer's outstanding
voting equity securities, calculated on the basis of voting power;
any promoter connected with the issuer in any capacity at the time
of filing, any offer after qualification, or such sale; any person
that has been or will be paid (directly or indirectly) remuneration
for solicitation of purchasers in connection with such sale of
securities; any general partner or managing member of any such
solicitor; or any director, executive officer or other officer
participating in the offering of any such solicitor or general
partner or managing member of such solicitor.
\179\ See 17 CFR 230.262(a).
\180\ See 17 CFR 230.262(b).
\181\ See U.S. Securities and Exchange Commission, Waivers of
Disqualification Under Regulation A and Regulation D (last reviewed
or updated Apr. 2, 2025), available at https://sec.gov/about/divisions-offices/division-corporation-finance/waivers-disqualification-under-regulation-regulation-d.
---------------------------------------------------------------------------
We believe it is appropriate to cross-reference the existing
standard in Regulation A, rather than enumerate disqualification
requirements specific to the proposed exemptions in Regulation Crypto
Assets, in the interest of regulatory consistency and simplicity. We
also believe that aligning the proposed disqualification standard with
the existing standard under Regulation A (which is aligned with similar
provisions in Regulation D and Regulation Crowdfunding) is appropriate
because it is likely to simplify due diligence, particularly for
issuers that may engage in different types of exempt offerings.\182\
Our experience with existing offering exemptions leads us to believe
that a bad actor disqualification provision would provide appropriate
investor protections in the context of covered investment contract
offerings.
---------------------------------------------------------------------------
\182\ We recognize that, in some places, Rule 262 refers to
``Regulation A'' or other Regulation A rules. Those references may
be somewhat confusing when trying to apply Rule 262 to the
Regulation Crypto Assets exemptions pursuant to proposed Rule 104.
For example, Rule 262(a) provides that ``[n]o exemption under
Sec. Sec. 230.251 through 230.263 (Regulation A) shall be available
for the sale of securities if the issuer'' or certain other persons
have engaged in certain disqualifying events. 17 CFR 230.262(a).
Therefore, we propose including an instruction to Rule 104(a)
stating that references to ``Regulation A'' or other Regulation A
rules in Rule 262(a) should, for purposes of Rule 104(a), be read as
references to Regulation Crypto Assets or its rules.
---------------------------------------------------------------------------
Further, under Rule 104, the disqualification provisions in Rule
262 would not apply with respect to any conviction, order, judgment,
decree, suspension, expulsion, or bar that occurred or was issued
before the date on which Rule 104 becomes effective, if the rule
ultimately is adopted. This approach would prevent prior conduct from
triggering disqualification without prior notice. To address concerns
regarding prior disqualifying events, however, Rule 104 would require
the issuer to include in an offering circular or otherwise furnish to
each purchaser, a reasonable time prior to sale, a description in
writing of any matters that would have triggered disqualification under
Rule 104 but occurred before the date on which Rule 104 becomes
effective.\183\ This disclosure would help put investors on notice of
events that would, but for the timing of such events, have disqualified
the issuer from relying on an exemption in Regulation Crypto Assets.
This approach is consistent with the approach the Commission took when
imposing bad actor disqualifications on newly created exemptions in the
past.\184\ Moreover, the failure to provide such information would not
prevent an issuer from relying on an exemption under Regulation Crypto
Assets if the issuer establishes that it did not know and, in the
exercise of reasonable care, could not have known of the existence of
the undisclosed matter or matters.\185\
---------------------------------------------------------------------------
\183\ See proposed 17 CFR 228.104(b). This provision is based on
a similar disclosure provision in Rule 262. That provision, however,
applies only to disqualifying events that occurred before Rule 262
became effective. Accordingly, we are including a similar provision
in Rule 104 to clarify the date to which such disclosure provision
applies.
\184\ See, e.g., 17 CFR 230.262(d); 17 CFR 230.506(e).
\185\ Rule 104 further would provide that an issuer would not be
able to establish that it has exercised reasonable care unless it
has made, in light of the circumstances, factual inquiry into
whether any disqualifications exist. The nature and scope of the
required factual inquiry will vary based on the facts and
circumstances concerning, among other things, the issuer and the
other offering participants. See proposed 17 CFR 228.104,
instruction to paragraph (b).
---------------------------------------------------------------------------
Request for Comment
37. Should we adopt Rule 104 as proposed?
38. Are there any portions of Rule 104 that we either should not
adopt or that we should change in the final rules? If so, please
identify those provisions along with any recommended changes to the
rule.
39. Would it be beneficial to maintain general uniformity between
Rule 104 and the disqualification provisions in Regulation A, as
proposed? Are there aspects of this disqualification provision
[[Page 54529]]
that are not well suited to Regulation Crypto Assets?
40. Are there types of persons that are subject to disqualification
as proposed under Rule 104 that should be excluded? Alternatively, are
there types of persons that are not subject to disqualification under
Rule 104 that should be included?
41. Are there types of disqualifying events that would trigger
disqualification under Rule 104 that should be excluded? Alternatively,
are there types of disqualifying events that would trigger
disqualification under Rule 104 that should be included?
42. Rather than cross-referencing Rule 262, should we instead
cross-reference the disqualification provision in Regulation D or
Regulation Crowdfunding? Are there aspects of these disqualification
provisions that are better suited to Regulation Crypto Assets than the
disqualification provision in Rule 262? Alternatively, should we adopt
a standalone disqualification provision rather than cross-referencing a
disqualification provision set forth in an existing exemption?
B. Startup Exemption (Subpart B, Rule 200)
Subpart B of Regulation Crypto Assets would set forth an exemption
from the registration requirements of section 5 of the Securities Act
for certain offers, sales, and other distributions of covered
investment contracts during a period of up to four years. This proposed
startup exemption would permit offerings of up to $5 million during the
four-year period. The exemption is intended to provide issuers with
temporary relief from Securities Act registration requirements--during
which time they may work towards fulfilling the essential managerial
efforts they represented or promised investors they would engage in
under the covered investment contract--while, at the same time,
ensuring that investors remain sufficiently protected and informed.
Issuers that rely on the exemption would remain subject to the
antifraud and antimanipulation provisions of the Federal securities
laws, including, but not limited to, section 17 of the Securities Act
and section 10 of the Exchange Act.
1. Background
As noted above,\186\ issuers often conduct ICOs when the relevant
project (i.e., the crypto asset and associated crypto network or
associated crypto application) is in its early stages or has not yet
begun. In those cases, the issuer typically uses the capital raised in
the ICO to fund development of the project. Because issuers in ICOs
typically pair the offer or sale of a crypto asset (or the promise to
deliver a crypto asset at a later date) with representations or
promises regarding their efforts to, for example, develop and market
the project, those issuers often are offering and selling covered
investment contracts.\187\ If that is the case, then those offers and
sales are subject to the Securities Act and, therefore, must be either
registered under section 5 or made pursuant to an exemption.
---------------------------------------------------------------------------
\186\ See supra note 21.
\187\ See 2026 Interpretation at 13722.
---------------------------------------------------------------------------
As with offers and sales of other types of securities, an issuer of
a covered investment contract must either register its offering or rely
on a valid exemption from registration. The Commission's existing
rules, however, pose two main difficulties when applied to offerings of
covered investment contracts. First, as discussed above,\188\ the
Commission's existing disclosure requirements may not elicit the types
of information that are most likely to be material to investors in
covered investment contracts. Thus, these disclosure requirements, when
applied to covered investment contract offerings, can impose undue
compliance costs on issuers while failing to provide investors with
information important to their investment decisions. The Commission has
confronted similar issues with respect to other asset classes and
sought to address them with bespoke disclosure requirements.\189\
---------------------------------------------------------------------------
\188\ See supra section II.A.4.
\189\ See id. (noting that the Commission has adopted Regulation
S-K subparts tailored to specific issuers and transactions, such as
Regulation M-A (mergers and acquisitions), Regulation AB (asset-
backed securities), subpart 1200 (oil and gas producing activities),
subpart 1300 (mining operations), subpart 1400 (banks and savings
and loans), and subpart 1600 (Special Purpose Acquisition
Companies)).
---------------------------------------------------------------------------
Second, subject crypto assets may eventually separate from the
issuer's representations or promises to engage in essential managerial
efforts, and, as a result, the covered investment contract may cease to
exist. This process of the covered investment contract ceasing to exist
generally occurs under the circumstances described in the 2026
Interpretation (e.g., as a result of the issuer fulfilling, or failing
to satisfy, its representations or promises to engage in essential
managerial efforts under the covered investment contract).\190\ This
process also may be consistent with issuers' and investors'
expectations in a covered investment contract offering. For example,
the completion of an issuer's stated goal at the outset of the offering
(i.e., the fulfillment of its representations or promises to engage in
essential managerial efforts under the covered investment contract)
should give rise to the cessation of the covered investment contract.
Similarly, investors' interest in the offering often is driven by their
perception of the likelihood of the issuer fulfilling its
representations or promises and achieving its stated goal. Thus, in
these circumstances, the relevant stakeholders in the offering may
share a common interest in achieving an outcome that will result in the
subject crypto assets (that initially were sold subject to an
investment contract) eventually not being subject to the Federal
securities laws.
---------------------------------------------------------------------------
\190\ See 2026 Interpretation at 13722-23.
---------------------------------------------------------------------------
Some have asserted that, as currently applied, the Federal
securities laws can inhibit the realization of this mutually beneficial
outcome.\191\ In short, for developers to complete crypto asset
projects as they envision and represent or promise to crypto asset
offerees and purchasers, they often must distribute crypto assets to
other persons. This is especially the case when the project
contemplates a functional and decentralized crypto network or
application. To the extent those distributions constitute offerings of
covered investment contracts, however, the Securities Act and the
Commission's rules thereunder can impose prohibitive costs or
burdens.\192\
---------------------------------------------------------------------------
\191\ See, e.g., Commissioner Peirce, Running on Empty; see also
letters from Nasdaq; CrowdCheck Law; AIMA; a16z 1; Crypto Council;
Figure Markets.
\192\ Some concerns also have been raised about other aspects of
the Federal securities laws that may apply to transactions involving
covered investment contracts. See Commissioner Peirce, Running on
Empty (recommending exemptions from the definitions of ``exchange,''
``broker,'' and ``dealer'' under the Exchange Act). This proposal
does not address those recommendations. We will continue to consider
whether further action with respect to covered investment contracts
beyond the proposed rules in this release is warranted. To the
extent concerns have been raised about whether an issuer may need to
register a class of covered investment contracts under section 12(g)
of the Exchange Act, we do not view covered investment contracts as
equity securities, and, therefore, we believe they are not subject
to section 12(g). Specifically, a covered investment contract is not
an ``equity security'' under section 3(a)(11) of the Exchange Act,
17 CFR 240.3a11-1, or 17 CFR 230.405. The term ``investment
contract'' is not included in the aforementioned statutory section
or rules, and a covered investment contract does not constitute any
of the financial instruments enumerated in the definition of
``equity security'' in such section or rules. See also infra note
249 and accompanying text.
---------------------------------------------------------------------------
The startup exemption, set forth in proposed 17 CFR 228.200 (``Rule
200''), would help address these concerns, thereby avoiding unduly
burdening issuers as they attempt to fulfill their
[[Page 54530]]
representations or promises to engage in essential managerial efforts
under covered investment contracts.\193\ Specifically, issuers that
qualify for the startup exemption would be able to distribute subject
crypto assets to potential associated crypto network or associated
crypto application participants via an offering framework that, on the
one hand, is tailored to covered investment contracts such that it
avoids undue costs and contemplates the potential eventual cessation of
the covered investment contract and, on the other hand, ensures
investors are appropriately protected and well-informed.
---------------------------------------------------------------------------
\193\ In that regard, we note that several commenters suggested
that the level of decentralization associated with a crypto asset
should determine whether such crypto asset is subject to an
investment contract and, therefore, that the Commission should adopt
an exemption to facilitate such decentralization. See supra sections
I.B.1 and 4. As discussed in the 2026 Interpretation, we believe the
determination as to whether a crypto asset is subject to an
investment contract is based on whether a crypto asset purchaser's
profit expectations depend on the issuer's representations or
promises to engage in essential managerial efforts. See 2026
Interpretation at 13721. That investment contract would, in turn,
cease to exist if the issuer fulfills those representations or
promises. Whether an issuer fulfills its representations or promises
to engage in essential managerial efforts depends on how the issuer
defines or otherwise describes such efforts in marketing and
promoting the investment contract. If the issuer represents or
promises to achieve decentralization of an associated crypto network
or associated crypto application, whether the issuer has achieved
decentralization would be based on how the issuer defined or
otherwise described decentralization, not a general market
conception of what constitutes decentralization. Thus, we believe
the proper focus of the startup exemption (and the investment
contract safe harbor, as discussed in section II.D below) should be
on the issuer's fulfillment of the representations or promises it
made to engage in essential managerial efforts under the covered
investment contract rather than a general market conception of
decentralization.
---------------------------------------------------------------------------
2. Proposed Rule
As noted in the preceding section, the startup exemption is
intended to provide issuers with a regulatory runway during which they
could attempt to fulfill their representations or promises to engage in
essential managerial efforts under covered investment contracts. Those
representations often focus on developing the functionality of, and
pursuing decentralization with respect to, the associated crypto
network or associated crypto application, which may necessitate the
distribution of subject crypto assets.\194\ Issuers relying on the
exemption would be able to perform the tasks needed to develop, test,
and launch their projects with increased certainty about the
application of the registration requirements of section 5 of the
Securities Act to their projects \195\ and with requirements that are
tailored to covered investment contracts and their issuers. Issuers
also would be able to rely on this exemption to conduct smaller
capital-raising transactions involving covered investment contracts
(subject to a $5 million offering limit). As explained in more detail
below, we believe this proposed exemption is appropriate in the public
interest and consistent with the protection of investors because it
appropriately balances capital formation and the protection of
investors in this space.
---------------------------------------------------------------------------
\194\ Covered investment contracts issued pursuant to the
startup exemption would not be restricted securities or otherwise
subject to rule-based resale restrictions, and the startup exemption
would not limit an issuer's ability to sell covered investment
contracts to retail investors (by, for example, prohibiting sales to
non-accredited investors or limiting the amount that may be sold to
such investors). General solicitation also would be permitted under
the startup exemption. These features would help to avoid
impediments to the development of network effects. See supra notes
12-15 and accompanying text.
\195\ Many of these tasks (including those functions that are
inherent to the operation of an associated crypto network or
associated crypto application) involve the transfer or distribution
of crypto assets that may constitute an offer or sale of covered
investment contracts subject to the Securities Act (e.g.,
distributions in connection with airdrops or transfers as gas fees,
fees for testing, or other compensation). See, e.g., letter from
Kiln (Apr. 3, 2025) (``Kiln'').
---------------------------------------------------------------------------
Rule 200 would be separated into five paragraphs, denominated (a)
through (e). Under Rule 200(a), a covered transaction would be exempt
from the registration requirements of section 5 of the Securities Act
if the issuer satisfied the rule's conditions. Rule 200(b) would set
forth those conditions, which are as follows: (1) four-year duration;
(2) issuer eligibility; (3) one-time use; (4) offering limit; (5)
disclosure and filing requirements; and (6) general conditions. Rule
200(c) would set forth the filing requirements for issuers relying on
the startup exemption. This provision would require the issuer to file
a notice of reliance with the Commission on a new form titled ``Form
NOR,'' a description of which would be codified at 17 CFR 239.605.\196\
Rule 200(d) would require the issuer to make the information set forth
in Rule 103 publicly accessible, free of charge, at a website address
specified in the notice of reliance at or prior to the time it files
the notice of reliance. Rule 200(d) also would require the issuer to
periodically update that information, as set forth in the rule.
Finally, Rule 200(e) would require the issuer to file a transition
report with the Commission on a new form titled ``Form TR,'' a
description of which would be codified at 17 CFR 239.604,\197\ no later
than four years after the date on which the issuer filed the notice of
reliance. Each of these provisions is discussed in more detail below.
---------------------------------------------------------------------------
\196\ As noted below, proposed Form NOR is set forth in Appendix
F to this release.
\197\ As noted below, proposed Form TR is set forth in Appendix
E to this release.
---------------------------------------------------------------------------
a. Scope of Exemption (Rule 200(a))
Under Rule 200(a), a covered transaction would be exempt from the
registration requirements of section 5 of the Securities Act if the
conditions set forth in Rule 200(b) were satisfied. As discussed in
section II.A.1.b above, a ``covered transaction'' would be defined in
Rule 100 as any offer, sale, or other distribution of a covered
investment contract in reliance on the startup exemption.\198\ A
covered transaction would include, but not be limited to, capital
raising transactions as well as other offerings of covered investment
contracts in exchange for, in recognition of, or as incentive for past
or future use of an associated crypto network or associated crypto
application, or as a reward or incentive for conducting activities
primarily related to operating, governing, or securing an associated
crypto network or associated crypto application.\199\
---------------------------------------------------------------------------
\198\ Because the startup exemption would apply only to covered
transactions once the conditions of Rule 200(b) (including filing a
notice of reliance on Form NOR and providing the disclosures set
forth in proposed Rule 103) are satisfied, issuers should be aware
that any communication made before that time may constitute an
``offer'' under the Securities Act that would not fall within the
scope of the exemption. As such, issuers should exercise caution
with respect to any such communications, including, for example, by
ensuring those communications are accurate and consistent with any
subsequent communications or disclosures made during the offering
period.
\199\ See proposed 17 CFR 228.100.
---------------------------------------------------------------------------
The broad scope of the definition of ``covered transaction'' is
intended to allow issuers to conduct distributions of covered
investment contracts in connection with the development, testing, and
launch of a subject crypto asset and associated crypto network or
associated crypto application, subject to the offering limit and the
other conditions in Rule 200(b). Importantly, this would enable the
issuer to more easily conduct the various distributions of covered
investment contracts that may be necessary in connection with the
development of a crypto network or application, including airdrops;
\200\
[[Page 54531]]
distributions related to staking, governance, and gas fees that are
intended to enable crypto network or application functionality; and
paying fees for testing or other compensation.\201\
---------------------------------------------------------------------------
\200\ As noted in the definition of ``covered transaction,'' an
issuer would be able to conduct an airdrop in reliance on the
startup exemption. See supra note 119 and accompanying text. As
discussed in section I.A.2.a above, in the 2026 Interpretation, the
Commission provided its view that airdrops of ``non-security crypto
assets by issuers to recipients who do not provide the issuer with
money, goods, services, or other consideration in exchange for the
airdropped non-security crypto assets'' do not become subject to an
investment contract and that issuers conducting such airdrops do not
need to register those transactions with the Commission under the
Securities Act or fall within one of the Securities Act's exemptions
from registration. 2026 Interpretation at 13730-31. As such, issuers
conducting airdrops that fall within the circumstances described in
the 2026 Interpretation would not need to rely on the startup
exemption, or any other exemption, for such airdrops. This would
include airdrops in which ``consideration was provided to the issuer
prior to the announcement of the airdrop and the recipients are not
required to provide any further consideration to the issuer after
such announcement in order to obtain the airdropped non-security
crypto asset.'' Id. at 13731. If, however, an issuer conducts an
airdrop that falls outside the scope of the circumstances described
in the 2026 Interpretation, then such issuer may conduct such
airdrop in reliance on the startup exemption, subject to the
offering limit in proposed Rule 200(b)(4). This would include, for
example, an airdrop in which the recipients would have to fulfill
conditions subsequent to the announcement of the airdrop, such as
buying a specific crypto asset, buying a good or service (whether or
not related to a crypto asset), or performing a specific task
(whether or not related to a crypto asset). See 2026 Interpretation
at 13731, n.141.
\201\ See, e.g., letters from AIMA; Kiln.
---------------------------------------------------------------------------
Request for Comment
43. Should we exempt covered transactions from the registration
requirements of section 5 of the Securities Act if the conditions in
Rule 200(b) are satisfied, as proposed in Rule 200(a)?
44. Does the proposed definition of ``covered transactions''
establish an appropriate scope for the exemption?
45. In footnote 192 above, we express our view that covered
investment contracts are not ``equity securities'' and, therefore, are
not subject to section 12(g) of the Exchange Act. Should we codify this
view by, for example, amending 17 CFR 240.12g5-1 to provide that for
purposes of determining whether an issuer is required to register a
class of equity securities with the Commission pursuant to section
12(g) of the Exchange Act, an issuer may exclude covered investment
contracts?
46. Are there specific revisions we should make to the proposed
startup exemption to address airdrops? For example, should we provide
additional guidance on how to calculate any consideration provided in
exchange for the airdrop? Alternatively, should we adopt a separate
exemption specifically tailored for airdrops? If so, what should a
standalone exemption contain?
b. Conditions (Rule 200(b))
Rule 200(b) would include six subparagraphs, each describing a
condition with which an issuer must comply in order to rely on the
startup exemption. Rule 200(b)(1) (Four-year duration) would require
the covered transaction to occur during the period beginning after the
issuer has filed a notice of reliance in accordance with Rule 200(c)(1)
and ending on the date that is the earlier of (i) four years after the
date of such filing or (ii) the date on which the issuer files a
transition report pursuant to Rule 200(e). The four-year maximum
duration of the startup exemption is intended to provide the issuers
with a reasonable amount of time to fulfill their representations or
promises to engage in essential managerial efforts under covered
investment contracts. At the same time, we are conscious that a
duration that is too prolonged could undermine the incentives that the
limited duration otherwise would provide issuers to fulfill their
representations or promises.
In this regard, we note that the startup exemption does not impose
certain requirements on the issuer that are contained in the other
proposed exemption (e.g., disclosing financial information or providing
narrative disclosures regarding the issuer's financial condition in a
Commission filing) so that the burdens of using the exemption are
commensurate with the $5 million offering limit, and also because it is
limited in its duration. The justification for less burdensome
disclosure requirements under the startup exemption may be undermined
if the duration were significantly extended. We believe the four-year
period and offering limit strike the appropriate balance with respect
to these considerations,\202\ but we are seeking commenters' feedback
on these aspects of the proposed rule.
---------------------------------------------------------------------------
\202\ In determining the appropriate maximum duration for the
exemption, we note that commenters suggested between three and four
years as the appropriate time period. See, e.g., letters from a16z 3
(``[P]rojects should remain eligible for the safe harbor so long as
they have achieved ``Network Maturity'' during the three-year
period.''); Injective Labs (July 9, 2025) (recommending a four-year
exemption). We also note that Commissioner Peirce's recommended
exemption would have a three-year duration, whereas draft
legislation introduced in the House of Representatives would exempt
from section 5 of the Securities Act offers and sales of covered
investment contracts if the ``issuer intends for the blockchain
system to which the digital commodity relates to be a mature
blockchain system,'' generally within four years. See Cmr. Peirce
Proposal 2.0; Digital Asset Market Clarity Act of 2025, H.R. 3633,
119th Cong. (2025), available at https://congress.gov/bill/119th-congress/house-bill/3633. Having considered these recommendations,
we are proposing the longer of the two alternatives (i.e., four
years) in order to ensure that issuers would have sufficient time
under the exemption to fulfill their representations or promises to
engage in essential managerial efforts under covered investment
contracts.
---------------------------------------------------------------------------
Rule 200(b)(2) (Issuer eligibility) would state that the issuer may
be an entity, an individual, or a group of individuals or entities. To
help ensure that investors remain sufficiently protected and that each
such member of the group of individuals or entities acknowledges
responsibility under the proposed rule, each member of the group (or an
authorized person for each member) would be required to sign the notice
of reliance and transition report and provide the certifications
thereunder.\203\ The members of the group would be responsible,
individually and collectively, for satisfying the conditions of the
exemption.
---------------------------------------------------------------------------
\203\ The term ``group'' as used in Regulation Crypto Assets is
intended to be consistent with the group concept under the
beneficial ownership reporting rules. See Modernization of
Beneficial Ownership Reporting, Release No. 33-11253 (Oct. 10, 2023)
[88 FR 76896, 76932] (noting that determining whether a group has
been formed ``does not depend solely on the presence of an express
agreement'' and that ``concerted actions by two or more persons for
the purpose of acquiring, holding or disposing of securities of an
issuer are sufficient to constitute the formation of a group'').
Under 17 CFR 240.13d-1(k)(2), a group may satisfy its beneficial
ownership reporting obligation either by a single joint filing or by
each of the group's members making an individual filing. By
contrast, under Rule 200, a joint notice of reliance and transition
report filing would be required, and the group would not satisfy its
filing obligations if each individual separately filed notices of
reliance or transition reports.
---------------------------------------------------------------------------
This provision is intended to recognize the fact that, in the early
stages of a crypto asset project, a developer or development team may
not have consulted legal counsel or expended the time and money
(especially if it has not yet raised funds) to form a legal entity
through which to conduct their business.\204\ These early-stage
projects, however, may still benefit from the ability to use the
startup exemption in order to progress their projects toward fulfilling
their representations or promises to engage in essential managerial
efforts under covered investment contracts. As such, we believe it is
appropriate not to limit use of the startup exemption to a single
entity acting as the issuer.\205\
---------------------------------------------------------------------------
\204\ See, e.g., letter from Vanguard Global Holdings LLC (May
28, 2025) (``[T]he reality is that many blockchain initiatives are
not born from large institutions or well-funded investors. They
often originate in garages, home offices, and kitchen tables . . . .
These are startups led by a single individual or a small team with a
bold vision but limited financial resources.'').
\205\ There is no requirement, however, that an issuer be a
``startup'' or early-stage in order to use the startup exemption, so
long as the issuer satisfies the exemption's conditions.
---------------------------------------------------------------------------
[[Page 54532]]
Rule 200(b)(3) (One-time use) would state that the issuer and its
affiliates must not have previously relied on the startup exemption
with respect to the same subject crypto asset, or a substantially
similar crypto asset, other than with respect to covered transactions
that occurred during the period set forth in Rule 200(b)(1). This
provision is intended to avoid potential loopholes whereby an issuer
could effectively circumvent the four-year limitation (by using the
startup exemption for another four years after having used it for a
prior four-year period) or the offering size limitation (by permitting
multiple affiliated issuers to each separately raise funds pursuant to
the startup exemption).
We recognize that some may view this proposed restriction as overly
broad given that it would apply both to the issuer and its affiliates.
We also recognize that the limitation on ``substantially similar crypto
assets'' \206\ may inhibit serial entrepreneurs from utilizing the
startup exemption with respect to separate crypto asset projects.
Despite those potential concerns, we believe the proposed one-time use
requirement is needed to avoid circumvention of the four-year
limitation and offering size limitation. Moreover, the potential
availability of other exemptions on which issuers may rely for covered
investment contract offerings (including the fundraising exemption) may
help mitigate concerns about unduly restricting issuers' ability to
develop crypto asset projects. Nonetheless, we invite comment as to
whether there is a more appropriate way to ensure the four-year
limitation and offering size limitation are not circumvented while, at
the same time, addressing these potential concerns.
---------------------------------------------------------------------------
\206\ This ``substantially similar'' standard is intended to
prevent an issuer or its affiliate from circumventing the one-time
use restriction by making superficial changes to a crypto asset or
the associated crypto network or associated crypto application. For
example, two crypto assets would be substantially similar if they
have different names but the crypto asset and the associated crypto
network or associated crypto application are functionally identical.
---------------------------------------------------------------------------
Rule 200(b)(4) (Offering limit) would provide that the sum of the
aggregate offering price in the covered transaction plus the gross
proceeds from all covered transactions before the start of and during
the current covered transaction must not exceed $5 million. As
discussed above,\207\ the ``aggregate offering price'' definition in
proposed Rule 100 would explain how to calculate the value of non-cash
consideration and foreign currency for purposes of evaluating
compliance with the $5 million limit. Because issuers relying on the
startup exemption would not be required to provide disclosures with
respect to financial information, or at the same frequency as they
would under a registered offering, we believe it is appropriate, in the
interest of investor protection, to impose a limit on the amount of
capital that can be raised under this exemption.\208\ We believe that
$5 million is an appropriate offering limit--especially in light of the
higher offering limit we are proposing under the fundraising exemption,
which covered investment contract issuers also may avail themselves of
given the non-exclusive nature of these exemptions--and is
proportionate to the disclosure requirements and other investor
protections in the startup exemption. That said, we invite comments as
to this aspect of the proposed rule.
---------------------------------------------------------------------------
\207\ See supra note 114 and accompanying text.
\208\ See, e.g., letter from a16z 3 (``Ultimately, caps are
necessary not only to mitigate investor risk, but also to preserve
the broader incentive structure of the Proposal. Without a cap on
primary sales, projects may use the Proposal to facilitate large-
scale distributions that function more like exit liquidity events
than capital-raising transactions intended to fund network
development.'').
---------------------------------------------------------------------------
Rule 200(b)(5) (Disclosure and filing requirements) would require
the issuer to satisfy the disclosure and filing requirements in Rule
200(c), (d), and (e). Those requirements, which are discussed in more
detail below, are intended to help ensure that investors are provided
with timely, material information in connection with their investment
decisions.
Finally, Rule 200(b)(6) (General conditions) would remind the
issuer that it must satisfy the applicable requirements set forth in
subpart A of Regulation Crypto Assets, including the disqualification
provision in Rule 104.\209\ Although those general provisions would
apply even in the absence of this condition, we believe it is
appropriate to include this provision to help promote compliance
(especially for those issuers that do not have legal counsel and are
less familiar with our rules).
---------------------------------------------------------------------------
\209\ See supra section II.A.5 for a discussion of this
provision.
---------------------------------------------------------------------------
Request for Comment
47. Should Rule 200 be time-limited as proposed in Rule 200(b)(1)?
If so, is four years an appropriate duration for Rule 200?
48. Should we allow individuals or a group of entities or
individuals to rely on Rule 200, as proposed under Rule 200(b)(2)? By
requiring each member of a group to make the certifications in the
notice of reliance and transition report, would the rule discourage two
or more persons (whether individuals or entities) from collaborating on
projects?
49. Should we include an issuer eligibility requirement that would
limit use of Rule 200 only to entities (i.e., excluding natural
persons)? If so, should we require that such entity be formed or
incorporated in the United States? Should we have any other issuer
eligibility requirements? For example, should we exclude certain types
of issuers consistent with the proposed issuer eligibility requirements
in the fundraising exemption?
50. To ensure that U.S. investors are adequately protected, should
we add a condition to the exemption to limit its application? For
example, similar to the fundraising exemption, should we limit use of
Rule 200 to issuers that have a majority of their executive officers or
directors that are U.S. citizens or residents, more than 50 percent of
their assets located in the United States, and their business
administered principally in the United States? Alternatively, should we
limit use of Rule 200 to issuers that have their principal place of
business in the United States? If so, should ``principal place of
business'' be defined and, if so, how should we define ``principal
place of business''? Are there other ways to ensure that U.S. investors
are adequately protected and provide them with more easily accessible
investment opportunities?
51. Should we include a one-time use condition as proposed in Rule
200(b)(3)? If so, is it appropriate to apply this limitation to both an
issuer and its affiliates? If not, how should that one-time use
limitation be applied? Is the ``substantially similar'' standard in the
proposed one-time use condition appropriate? If not, should it be
eliminated or amended?
52. Would the one-time use condition in Rule 200(b)(3) unduly
impede the ability of certain ``repeat players'' (e.g., serial
entrepreneurs or angel investors) from participating in crypto
projects? Should we make any changes to Rule 200(b)(3) to avoid such
impediments? For example, should we include a de minimis investment or
participation carveout from the condition in Rule 200(b)(3) that would
permit an issuer to rely on the startup exemption with respect to the
same subject crypto asset, or a substantially similar crypto asset,
more than once without running afoul of the one-time use condition? If
so, what are the appropriate de minimis thresholds (for investment,
participation, or otherwise) that we should include in a carveout from
proposed Rule 200(b)(3)?
53. Should Rule 200 have a $5 million offering limit as proposed in
Rule
[[Page 54533]]
200(b)(4)? Should we adopt a higher or lower offering limit? What would
be the corresponding effects on investor protection and capital
formation of a different offering limit?
54. Services rendered to the issuer, including those in furtherance
of the development, testing, or promotion of the associated crypto
network or associated crypto application, in exchange for covered
investment contracts may constitute ``covered transactions'' that count
towards the offering limit in proposed Rule 200(b)(4). Is the proposed
definition of ``covered transactions'' too narrow or too broad for
purposes of proposed Rule 200(b)(4)? For example, would the definition
of ``covered transactions'' make it difficult to use the proposed
exemption for airdrops? Should we scope any covered transactions out of
the offering limit in Rule 200(b)(4)? Alternatively, are there
transactions that should count towards the offering limit in Rule
200(b)(4) that are not captured by the proposal?
55. Should we include investment limits for individuals, as we have
proposed for the fundraising exemption? If so, what limits should we
adopt?
56. Should we require an issuer to satisfy the disclosure and
filing requirements in Rule 200(c), (d), and (e) as proposed in Rule
200(b)(5)?
57. Should we include the reminder in Rule 200(b)(6) that the
issuer must satisfy the applicable requirements set forth in subpart A
of Regulation Crypto Assets? Would this provision help to promote
compliance?
c. Notice of Reliance (Rule 200(c))
Rule 200(c) would include three subparagraphs related to the notice
of reliance that the issuer would be required to file under the startup
exemption.
Rule 200(c)(1) would require the issuer to file with the Commission
a notice of reliance containing the information required by Form NOR,
which is attached hereto as Appendix F, prior to any covered
transaction. Form NOR, in turn, would require the issuer to provide the
following information:
Information regarding the issuer, including the issuer's
name (or names, if the issuer is a group of individuals and/or
entities), jurisdiction of incorporation or formation (if the issuer is
or includes an entity), address of principal executive offices (if
any), telephone number, and email address; \210\
---------------------------------------------------------------------------
\210\ To the extent that the issuer is composed of a group of
individuals and/or entities, the issuer would be required to
designate a single telephone number and email address for purposes
of the Form NOR.
---------------------------------------------------------------------------
The name of the subject crypto asset;
The website address at which the issuer will make the
information described in Rule 103 publicly accessible, free of charge,
pursuant to Rule 200(d)(1); and
A certification that the information in the Form NOR is
true, complete, and correct and that the issuer intends to fulfill,
within four years after the date of the filing of the Form NOR, the
essential managerial efforts the issuer represented or promised
investors it would engage in under the covered investment contract.
This notice of reliance on Form NOR, which the issuer would be
required to file publicly on EDGAR,\211\ would serve to make investors,
the Commission, and other members of the public aware that the issuer
had begun relying on the startup exemption. The filing of the notice of
reliance also would ``start the clock'' on the four-year period under
Rule 200(b)(1). Furthermore, requiring the issuer to certify in the
notice that it intends to fulfill those representations or promises
within four years would help to ensure that the exemption is being used
for its intended purposes.
---------------------------------------------------------------------------
\211\ See proposed 17 CFR 228.101(c) (requiring documents filed
pursuant to Regulation Crypto Assets to be submitted electronically
on EDGAR). Form NOR would be required to be formatted in HyperText
Markup Language (``HTML''), as would be further provided in the
EDGAR Filer Manual, to be compatible with EDGAR.
---------------------------------------------------------------------------
Rule 200(c)(2) would provide that an issuer may file an amendment
to a previously filed notice of reliance on Form NOR at any time. This
permissive amendment provision is substantially similar to 17 CFR
230.503(a)(2) under Regulation D and is intended to permit issuers to
update their notice of reliance as they see fit.
Finally, Rule 200(c)(3) would require an issuer to file an
amendment to a previously filed notice of reliance on Form NOR: (i) to
correct a material mistake of fact or error in the previously filed
notice of reliance, as soon as practicable after discovery of the
mistake or error; or (ii) to reflect a material change in the
information provided in the previously filed notice of reliance, as
soon as practicable after the change. The issuer would remain under
this obligation to amend Form NOR until the earlier of: (1) the end of
the four-year period after the issuer files the initial notice of
reliance; and (2) the date on which the issuer files a transition
report on Form TR pursuant to Rule 200(e). We recognize that the vast
majority of the information required to be disclosed under the startup
exemption would be made available on the issuer's website pursuant to
Rule 103. Nonetheless, we believe it is appropriate to require the
issuer to amend its notice of reliance in a timely manner if the notice
of reliance contains a material mistake or error or if there is a
change in the information previously provided in the form in light of
the fundamental nature and importance of the information that is
required to be disclosed in the Form NOR.
Request for Comment
58. Should we require an issuer to file a notice of reliance on
Form NOR prior to any covered transaction as proposed in Rule 200(c)?
59. Would Form NOR, as proposed, provide market participants the
appropriate amount and type of information to make an informed
investment decision?
60. Are there certain types of organizational structures that
cannot satisfy the disclosure requirement to provide a jurisdiction of
incorporation or formation (if the issuer is or includes an entity)?
For example, could decentralized unincorporated nonprofit associations
satisfy this requirement? If not, should we revise this requirement to
accommodate any such organizational structures?
61. Should we require disclosure of the address of the issuer's
principal executive office only if the issuer has a principal executive
office, as proposed in Rule 200(c)? If an issuer does not have a
principal executive office, should we require the issuer to provide a
different address (e.g., the address for the issuer's agent for service
of process)?
62. Would the requirement in Form NOR that the issuer certify that
it intends to fulfill its representations or promises within four years
help to ensure that the exemption is being used for its intended
purposes? If not, should this certification be eliminated or revised?
For example, should we change the proposed standard from ``intent'' to
a different standard? If so, what standard should we use? Instead of
the proposed approach, should we require an issuer to certify that it
is aware of the time limitations of the exemption without having to
certify that it intends to fulfill its representations or promises
within four years?
63. Should we require an issuer to file an amendment to Form NOR to
correct a material mistake or reflect a material change in the
information provided previously? If not, why not? If so, is ``as soon
as practicable'' after the discovery
[[Page 54534]]
or change the proper time period to file the amendment? Should we adopt
a specific timeframe, such as 24 hours or four business days? Is there
another specific timeframe we should consider?
d. Disclosure Requirements (Rule 200(d))
Rule 200(d) would include three subparagraphs related to the
disclosure requirements that the issuer would be required to comply
with under the startup exemption.
Rule 200(d)(1) would require the issuer to make the information
described in Rule 103 publicly accessible, free of charge, at the
website address specified in the notice of reliance at or prior to the
time that the notice of reliance is filed with the Commission in
accordance with Rule 200(c)(1).\212\ Taken together with the
information required in Form NOR itself, this requirement would help to
ensure that investors have access to the information needed to make
informed investment decisions before issuers can begin making offers
and sales of covered investment contracts under the startup exemption.
It also would be consistent with our understanding of current practice
in many ICOs, in which the primary disclosure document (i.e., the
project's whitepaper) is posted on the developer's public website. The
proposed rule is intended to be compatible with this existing practice
in order to limit issuers' compliance costs (especially in view of the
fact that many of these issuers are smaller and may not be familiar
with EDGAR), but with additional conditions that would help to ensure
investors are appropriately informed and protected. Those other
conditions (including the relatively low offering amount limit, one-
time use limitation, and the four-year limitation), as well as the
requirement to specify the website address containing the information
in the notice of reliance, should mitigate any investor protection
concerns associated with this accommodation.\213\
---------------------------------------------------------------------------
\212\ Rule 200(d)(1) does not require that the issuer include
the information required by Rule 103 in its Form NOR, which is filed
on EDGAR. Instead, the rule allows the issuer the flexibility to
determine the location and manner of presentation of such
information, so long as it meets the requirements of Rule 103 and is
publicly accessible and free of charge at the website address
specified in the notice of reliance. That said, to the extent an
issuer elects to include that information in its notice of reliance,
such an approach would be permitted by Rule 200(d)(1).
\213\ The Commission may assess whether a similar approach could
be extended to other exemptions.
---------------------------------------------------------------------------
Rule 200(d)(2) would require the issuer to ensure that the
information disclosed under Rule 200(d)(1) of this section remains
publicly accessible and free of charge at the website address specified
in the notice of reliance. This obligation would continue until the
earlier of: (1) the end of the four-year period after the issuer files
the initial notice of reliance; or (2) the date on which the issuer
files a transition report on Form TR pursuant to Rule 200(e). Because
the information disclosed under Rule 200(d)(1) is not required to be
filed on EDGAR, this provision is intended to prevent a situation in
which an issuer technically complies with Rule 200(d)(1) by providing
the information at or prior to filing the notice of reliance but
removes that information shortly (or immediately) after filing the
notice of reliance.
Finally, Rule 200(d)(3) would require the issuer periodically to
amend the information disclosed under Rule 200(d)(1) for any material
changes. This obligation would continue until the earlier of: (1) the
end of the four-year period after the issuer files the initial notice
of reliance; or (2) the date on which the issuer files a transition
report on Form TR pursuant to Rule 200(e). Specifically, the issuer
would be required to amend the information disclosed under Rule
200(d)(1) within 30 calendar days after the end of each calendar year
if, as of the end of the calendar year, there are any material changes
in the information previously disclosed.
Because the issuer may be conducting offers and sales of covered
investment contracts throughout the duration of the startup exemption,
we believe it is important that the information required under Rule 103
periodically be updated to the extent material changes are made to that
information so that investors are sufficiently informed. This is
consistent with the feedback the Crypto Task Force received from
several commenters.\214\ This ongoing disclosure obligation also would
help keep existing investors apprised of the issuer's progress toward
fulfilling its representations or promises to engage in essential
managerial efforts under the covered investment contract. Further, to
the extent a secondary market develops for the covered investment
contracts issued under the startup exemption, this ongoing disclosure
obligation would promote liquidity in that market.\215\
---------------------------------------------------------------------------
\214\ See, e.g., letters from DeFi Education Fund (``[I]t would
be logical to condition the Safe Harbor on ongoing periodic
disclosures until the end of the Safe Harbor period.''); Figure
Markets (``Ongoing disclosures should focus on material changes,
such as protocol updates, security audits, and network performance
metrics, ensuring transparency and enabling informed decision-
making. These disclosures, facilitated through blockchain's
transparent ledger and self-custody wallets, would enhance investor
access to information and improve regulatory oversight, aligning
with goals of market efficiency and regulatory effectiveness.'').
\215\ As noted in section II.A.4 and footnote 194 above, covered
investment contracts sold under the startup exemption would not be
restricted securities. As such, investors generally would be able to
transfer their covered investment contracts after acquiring them
from the issuer.
---------------------------------------------------------------------------
We believe the annual amendment obligation under Rule 200(d)(3), as
well as the filing deadline in that rule, would keep investors timely
informed of changes in the information disclosed under Rule 200(d)(1)
while also avoiding undue compliance costs for issuers. That said, we
are seeking commenters' input on whether the proposed rule
appropriately balances these considerations.
Request for Comment
64. Do the proposed disclosure requirements in Rule 200(d) strike
the appropriate balance between avoiding undue burdens on issuers while
ensuring that investors are sufficiently protected and well-informed?
65. Should Rule 200(d)(1) require the information required by Rule
103 be filed on EDGAR rather than permitting the issuer to provide such
information on a separate website? Would permitting this information to
be provided on a separate website adversely impact the ability of
investors and the Commission to pursue claims against the issuer for
material misstatements or omissions? For example, absent the
requirement to file such information on EDGAR, how would investors and
the Commission be able to determine what information the issuer
provided to investors at the time they were offered and sold covered
investment contracts? Are there changes we should make to address these
concerns?
66. Should the information required in Rule 200(d)(1) be required
to remain accessible on the issuer's website for the duration of the
period described in Rule 200(b)(1)?
67. Should we adopt the proposed amendment obligation and amendment
deadline in Rule 200(d)(3)? If so, is 30 calendar days after the end of
each calendar year the appropriate amendment deadline? Should the
deadline be extended or shortened?
68. Should issuers be required to assess their amendment
obligations under Rule 200(d)(3) more or less frequently than the
proposed annual frequency? If so, what is an appropriate frequency? For
example, should we require issuers to assess their amendment
obligations semiannually? Alternatively, should issuers'
[[Page 54535]]
amendment obligations be triggered upon a material change to the
information previously disclosed? If so, what would be an appropriate
amendment deadline after a material change?
69. Should we include a requirement that issuers identify any
changes to the filed Rule 200(d)(3) information to better ensure that
investors are made aware of changes in the information previously
disclosed? If so, how should those changes be identified? For example,
should issuers be required to mark the changes made in the amendment to
allow an easier comparison to the previous version? Alternatively,
should issuers only be required to explain the changes as a note to the
information? Should issuers be required to keep prior versions of the
information available on their websites?
e. Transition Report (Rule 200(e))
Finally, Rule 200(e) would require the issuer to file with the
Commission a transition report containing the information required by
Form TR no later than four years after the date on which the issuer
filed a notice of reliance under Rule 200(c)(1). This transition
report, which the issuer would be required to file publicly on
EDGAR,\216\ would serve to make investors, the Commission, and other
members of the public aware that the issuer has ceased relying on the
startup exemption. Thus, after filing the transition report, the issuer
would no longer be able to offer and sell covered investment contracts
in reliance on the startup exemption. The issuer, however, also would
no longer be required to comply with the amendment requirements with
respect to the notice of reliance or the disclosure obligations under
Rule 200(d).
---------------------------------------------------------------------------
\216\ See proposed 17 CFR 228.101(c) (requiring documents filed
pursuant to Regulation Crypto Assets to be submitted electronically
on EDGAR). Form TR would be required to be formatted in HTML, as
would be further provided in the EDGAR Filer Manual, to be
compatible with EDGAR.
---------------------------------------------------------------------------
In order to satisfy the transition report requirement in Rule
200(e), the issuer would have to provide the information required in
Form TR, which is attached hereto as Appendix E. Form TR would be used
to satisfy the transition report requirements under the startup
exemption, the fundraising exemption, and the investment contract safe
harbor.\217\ As such, the form would set forth different disclosure
requirements depending on the rule pursuant to which it was being
filed. With respect to a transition report filing under Rule 200(e),
Form TR would require the issuer to provide the following information:
---------------------------------------------------------------------------
\217\ See infra sections II.C and D for discussions of the
fundraising exemption and the investment contract safe harbor. Under
the proposed rules, neither the Commission nor its staff would be
required to review or take action with respect to a Form TR. As
such, an issuer that filed a Form TR pursuant to Rule 200(e) would,
immediately upon such filing, satisfy the applicable transition
report requirement under the startup exemption, the fundraising
exemption, or the investment contract safe harbor.
---------------------------------------------------------------------------
Information regarding the issuer, including the issuer's
name (or names, if the issuer is a group of individuals and/or
entities), jurisdiction of incorporation or formation (if the issuer is
or includes an entity), address of principal executive offices (if
any), telephone number, and email address; \218\
---------------------------------------------------------------------------
\218\ To the extent that the issuer is composed of a group of
individuals and/or entities, the issuer would be required to
designate a single telephone number and email address for purposes
of the Form TR.
---------------------------------------------------------------------------
Other information based on whether the issuer has or has
not satisfied certain conditions:
[cir] If the issuer has satisfied the condition in proposed 17 CFR
228.400(a) (``Rule 400(a)'') \219\: (1) a brief description of the
covered investment contract and crypto asset sufficient for a
reasonable investor to identify the security and crypto asset to which
the filing relates (Item 1 of Form TR); (2) a certification that the
issuer has satisfied the condition in Rule 400(a) with respect to such
covered investment contract and crypto asset (Item 2 of Form TR); and
(3) an analysis supporting that certification (Item 3 of Form TR); and
---------------------------------------------------------------------------
\219\ See proposed 17 CFR 228.400(a). As discussed in more
detail in section II.D below, the condition in Rule 400(a) would be
satisfied if the issuer of the covered investment contract has
completed or otherwise permanently ceased all essential managerial
efforts that it represented or promised it would engage in under the
covered investment contract and is not making and does not intend to
make any new representations or promises to engage in essential
managerial efforts with respect to the crypto asset. This condition
is intended to reflect the point in time at which the crypto asset
has separated from the issuer's representations or promises and the
covered investment contract has ceased to exist. In analyzing
whether it has completed or otherwise permanently ceased all
essential managerial efforts that it represented or promised it
would engage in under the covered investment contract, we expect
that an issuer would refer to its disclosure pursuant to proposed
Rule 103(b)(1). See proposed 17 CFR 228.103(b)(1) (requiring
disclosure, among other things, of the issuer's representations or
promises to engage in essential managerial efforts under the covered
investment contract and its progress with respect to such
representations or promises); see also infra note 370 and
accompanying text.
---------------------------------------------------------------------------
[cir] If the issuer has not satisfied the condition in Rule 400(a):
(1) a brief description of the covered investment contract for a
reasonable investor to identify the security to which the filing
relates (Item 4 of Form TR); (2) a description of the current status of
the covered investment contract, the subject crypto asset, and the
associated crypto network or associated crypto application and the
issuer's plans with respect to these items (Item 5 of Form TR); and (3)
if the issuer indicates that the covered investment contract has ceased
to exist, an analysis supporting that determination (Item 6 of Form
TR).
If the issuer had, at the time of the Form TR filing, satisfied the
condition in Rule 400(a), then the Form TR filing under Rule 200(e)
also would satisfy the transition report condition under the investment
contract safe harbor.\220\ In that case, the issuer would note on the
Form TR that it was being filed pursuant to both Rule 200(e) and the
investment contract safe harbor.
---------------------------------------------------------------------------
\220\ See infra section II.D.
---------------------------------------------------------------------------
If the issuer had not, at the time of the Form TR filing, satisfied
the condition in Rule 400(a), the disclosure required under Form TR
would be intended to apprise investors, the Commission, and other
members of the public of the current status of, and the issuer's plans
with respect to, the covered investment contract, subject crypto asset,
and associated crypto network or associated crypto application. With
respect to the covered investment contract, this would require the
issuer to, for example, describe its progress with respect to its
representations or promises to engage in essential managerial efforts
under the covered investment contract and its plans for how it intends
to satisfy those representations or promises (if the issuer does, in
fact, plan to satisfy those representations or promises). With respect
to the subject crypto asset and associated crypto network or associated
crypto application, this would require the issuer to, for example,
discuss the current status of, and its plans with respect to, the
development of the subject crypto asset and the associated crypto
network or associated crypto application. It also is possible that,
although the issuer has not satisfied the condition in Rule 400(a), the
issuer may have determined that the covered investment contract ceased
to exist.\221\ In those cases, the issuer would be required to provide
an analysis supporting that determination.
---------------------------------------------------------------------------
\221\ See 2026 Interpretation at 13723; see also supra section
I.A.2.b.
---------------------------------------------------------------------------
Request for Comment
70. Should we adopt the transition report requirement in Rule
200(e) as proposed? If we should not require a transition report,
please explain why not.
[[Page 54536]]
71. Is there any information in Form TR that should not be
required? If so, what information should be excluded? Is there any
information that we should add to the form? If so, what should be added
and why?
72. Are there certain types of organizational structures that
cannot satisfy the disclosure requirement to provide a jurisdiction of
incorporation or formation (if the issuer is or includes an entity)?
For example, could decentralized unincorporated nonprofit associations
satisfy this requirement? If not, should we revise this requirement to
accommodate any such organizational structures?
73. Should we require disclosure of the address of the issuer's
principal executive office only if the issuer has a principal executive
office, as proposed in Rule 200(e)? If an issuer does not have a
principal executive office, should we require the issuer to provide a
different address (for example, the address for the issuer's agent for
service of process)?
74. Should we provide additional guidance as to what type of
information should be included in the analyses required by Items 3 and
6 of Form TR? Are there alternative disclosures that we should require
in lieu of such analyses?
C. Fundraising Exemption (Subpart C, Rules 300 Through 307)
Subpart C of Regulation Crypto Assets would set forth an exemption
from the registration requirements of section 5 of the Securities Act
for offerings of up to $75 million of covered investment contracts in a
12-month period. This proposed fundraising exemption, composed of two
tiers with separate offering limits, is modeled in part on Regulation
A. The fundraising exemption, which we are proposing pursuant to the
Commission's exemptive authority under section 28 of the Securities
Act,\222\ is intended to facilitate larger capital raising transactions
for covered investment contract issuers than would be permitted under
the startup exemption.\223\ Issuers that rely on the exemption would
remain subject to the antifraud and antimanipulation provisions of the
Federal securities laws, including, but not limited to, section 17 of
the Securities Act and section 10 of the Exchange Act.
---------------------------------------------------------------------------
\222\ 15 U.S.C. 77z-3 (``The Commission, by rule or regulation,
may conditionally or unconditionally exempt any person, security, or
transaction, or any class or classes of persons, securities, or
transactions, from any provision or provisions of this subchapter or
of any rule or regulation issued under this subchapter, to the
extent that such exemption is necessary or appropriate in the public
interest, and is consistent with the protection of investors.'').
\223\ See supra section II.B (proposing a $5 million offering
limit under the startup exemption).
---------------------------------------------------------------------------
1. Background
As discussed in section I.B.3 above, a number of public
commentators, including some Commissioners, have expressed concerns
that the existing exempt offering and disclosure framework is not
``fit-for-purpose'' for covered investment contract offerings.\224\ In
particular, several commenters stated that the Commission's existing
forms and disclosure rules, which were designed with traditional
securities (e.g., stocks and bonds) in mind, are not well-suited to
covered investment contract offerings and their issuers based on
characteristics that are unique to those offerings and issuers, nor do
they elicit the types of information that are likely to be material to
investors in those offerings.\225\ For example, one commenter with
``extensive experience in trying to fit [covered investment contract]
issuances into available exemptions under the Securities Act''
suggested that issuers often encounter ``too much confusion'' when
working within the existing regulatory framework and noted that their
``experience in many cases has proved frustrating.'' \226\ Some
commenters have expressed the view that these conditions have resulted
in certain adverse consequences for the U.S. crypto asset markets,
including: barriers to capital raising; capital flight overseas;
stifled innovation in the crypto assets market; information asymmetries
and insufficient disclosure for investors in covered investment
contract offerings (as a result of investors receiving mandated
disclosure that is not relevant, while simultaneously not receiving
disclosure that would be relevant, to their investment decisions);
potential uncertainty regarding the application of accounting and
financial reporting standards and levels of assurance to covered
investment contract offerings; and what those commenters view as
unreasonable restrictions on retail and other public investors' ability
to participate in covered investment contract offerings.\227\
---------------------------------------------------------------------------
\224\ See, e.g., letters from a16z 2; a16z 3; AIMA; Anderson;
Broadridge; L. Cohen; Coinbase; CoinList; Z. Dane; Figure Markets;
CrowdCheck Law; J. Kim; OpenZeppelin; G. Shapiro; SIFMA 2; TDC 2;
tZero. See also Chairman Paul S. Atkins, Keynote Address at the
Crypto Task Force Roundtable on Tokenization (May 12, 2025)
(``Chairman Atkins Keynote Address''), available at https://sec.gov/newsroom/speeches-statements/atkins-remarks-crypto-roundtable-tokenization-051225; Parikshit Mishra, SEC Commissioner Mark Uyeda
Calls for S-1 Form Tailored for Digital Assets, CoinDesk (Sept. 3,
2024), available at https://coindesk.com/policy/2024/09/03/sec-commissioner-mark-uyeda-calls-for-s-1-form-tailored-for-digital-assets; LeXpunK Regulation X Proposal, supra note 141.
\225\ See, e.g., letters from a16z 2; AIMA; Coinbase; CoinList;
GDCA; TDC 2.
\226\ Letter from CrowdCheck Law.
\227\ See, e.g., letters from The Center for Audit Quality (May
2, 2025) (``CAQ''); Coinbase; CoinList.
---------------------------------------------------------------------------
Several commenters suggested using existing exempt pathways,
including Regulation A, to facilitate capital raising by issuers of
covered investment contracts,\228\ with some commenters stating that
Regulation A provides a ``strong foundation'' and a ``practical
starting point'' for a bespoke offering exemption.\229\ One commenter
suggested that Commission staff guidance could clarify that covered
investment contracts are eligible securities under 17 CFR 230.261 of
Regulation A (``Rule 261'').\230\ This commenter also stated that
disclosure relevant to covered investment contract offerings could be
tailored to satisfy Form 1-A requirements with a ``common-sense,
principles-based approach'' to disclosure.\231\ Nonetheless, these
commenters also generally recommended that the disclosure requirements
be tailored to include relevant information relating to covered
investment contracts (rather than requiring disclosure of information
that may not be relevant but is required in ``traditional''
offerings).\232\
---------------------------------------------------------------------------
\228\ See, e.g., letters from CrowdCheck Law; Nasdaq; SIFMA 2.
\229\ See, e.g., letters from Coinbase; DealMaker (Regulation A
provides a ``strong foundation''); GDCA (``[A] version of Regulation
A that accounts for the types of disclosures relevant to a token
purchaser may be useful at this time and can serve as a practical
starting point.''); PricewaterhouseCoopers LLP (May 1, 2025)
(``PwC'') (stating that ``regulatory requirements that guide
traditional public offerings provide a robust foundation for public
offerings of crypto assets''); SIFMA 2.
\230\ See letter from CrowdCheck Law.
\231\ Id.
\232\ See, e.g., letters from CrowdCheck Law; PwC; SIFMA 2.
---------------------------------------------------------------------------
Other commenters, however, highlighted some potential concerns
associated with using Regulation A, in its current form, with respect
to covered investment contract offerings. As noted in section I.B.3
above, some commenters suggested that Regulation A may be legally
unavailable for covered investment contract offerings.\233\ Commenters
also expressed a variety of concerns regarding the practical
limitations of using Regulation A in the context of covered investment
contract offerings, as described in section I.B.3
[[Page 54537]]
above and as discussed in more detail below.
---------------------------------------------------------------------------
\233\ See supra note 94 and accompanying text.
---------------------------------------------------------------------------
Some commenters stated that Regulation A, in its current form, may
be ill-suited for covered investment contract offerings. For example,
one commenter described Regulation A as ``not currently a useful
vehicle'' for covered investment contract offerings and noted several
challenges with it, including, in its view, Regulation A's (1)
inflexible disclosure requirements modeled on traditional equity
offerings, (2) ongoing reporting obligations that presume a perpetual
issuer (which differs from crypto asset projects designed to eliminated
centralized control over time), (3) offering limits misaligned with
crypto asset projects' needs, and (4) uncertainty regarding whether
``tokenized assets that trade via decentralized exchanges or
alternative trading systems'' can trade freely on the secondary
market.\234\ Another commenter suggested that Regulation A's disclosure
and ongoing reporting requirements are inflexible and ill-suited for
covered investment contract offerings and asserted that Regulation A's
forms do not reflect the technological and operational aspects of such
offerings that may occur via smart contracts, network launch
conditions, and wallet-based eligibility criteria.\235\ Other
commenters described Regulation A as designed for ``traditional
securities'' \236\ and observed that ``[w]here there is a securities
offering involving novel technological or operational features or the
sale of new digital assets, there will likely be new types of
information that are relevant to investors in assessing risk.'' \237\
Commenters also expressed a need for greater regulatory clarity and
accounting and auditing guidance for crypto assets and related
transactions \238\ and described additional burdens associated with
Regulation A offerings, including the costs they incur to prepare
disclosure in connection with ongoing reporting obligations and to
obtain audits (especially with respect to smaller, early-stage
ventures).\239\
---------------------------------------------------------------------------
\234\ Letter from a16z 3.
\235\ See letter from Perkins Coie LLP (Aug. 15, 2025).
\236\ See letter from Coinbase.
\237\ Letter from SIFMA 2.
\238\ See, e.g., letters from CAQ (stating that ``establishment
of clear regulatory frameworks . . . will enable a more consistent
application of accounting, financial reporting, and auditing
requirements related to crypto assets.''); Deloitte & Touche LLP
(May 7, 2025) (``Deloitte'') (``We believe a coordinated effort to
develop US GAAP, as needed, through the FASB, with established
processes to seek interpretive guidance with input from the FASB,
the SEC, and the profession, will result in higher quality guidance
and more clarity to all market participants than will fragmented
guidance emanating from different sources.''); Ernst & Young LLP
(May 22, 2025) (``EY'') (``We encourage the SEC to monitor crypto
asset activities to help identify transactions that could warrant
additional standard setting and to refer such cases to the FASB for
a possible standard-setting project.''); PwC (``The application of
the current regulatory framework to crypto assets is unclear, with
varying interpretations resulting in inconsistencies in how
companies apply them and how regulators enforce them . . . . A new
framework that combines regulations and interpretive guidance is
needed to provide regulatory certainty, support investor protection,
and maintain the attractiveness of the US capital markets for crypto
asset-related transactions.'').
\239\ See generally letters from a16z 2; AIMA; Coinbase;
DealMaker; Figure Markets; GDCA; see also Attachment to Crypto Task
Force Memorandum regarding Meeting with Representatives of Hiro
Systems PBC and Wilson Sonsini Goodrich & Rosati (May 13, 2025)
(``Hiro Meeting Agenda''), available at https://sec.gov/files/ctf-memo-hiro-systems-pbc-wilson-sonsini-goodrich-rosati-051325.pdf.
---------------------------------------------------------------------------
Several commenters expressed the view that Regulation A's
disclosure requirements would need revision to elicit the types of
information that would be material to investors in covered investment
contracts.\240\ One commenter stated that Regulation A would require a
``significant update'' before it could serve as a framework for covered
investment contract offerings.\241\ Another commenter that supported
revising Regulation A identified certain Regulation A disclosure
requirements about equity securities--such as issuer information about
stockholder's equity, previously issued outstanding securities, and
earnings per share--that the commenter viewed as inapplicable to
covered investment contracts.\242\
---------------------------------------------------------------------------
\240\ See, e.g., letter from DealMaker (``While Regulation A's
disclosure framework is based on traditional corporate equity
offerings, it can be adapted to suit the unique characteristics of
crypto assets . . . .''); Hiro Meeting Agenda (``The absence of
bespoke crypto disclosures means the substance of existing
disclosures may not include key network commentary expected by users
and investors. To align expectations and increase the utility of the
filings, we recommend a revision of [Regulation A] disclosures to
incorporate network activities and metrics.''); GDCA (``For bona
fide securities offerings that involve crypto assets, a version of
Regulation A that accounts for the types of disclosures relevant to
a token purchaser may be useful at this time and can serve as a
practical starting point for digital asset token offerings.'');
SIFMA 2 (``SEC Regulation A and Regulation D would need to be
supplemented by issuing guidance which addresses investor
protection, suitability, and disclosures that are specific to
fundraising sales of digital assets.'').
\241\ See letter from Coinbase.
\242\ See letter from TDC 2.
---------------------------------------------------------------------------
Finally, several commenters stated that Regulation A's offering
mechanics and conditions may limit the utility of the exemption with
respect to covered investment contract offerings. For example, several
commenters supported an offering limit for covered investment contract
offerings that is higher than the current offering limit permitted
under Regulation A (which is $75 million for a Tier 2 offering).\243\
One commenter recommended increasing the Regulation A offering limit to
at least $150 million to better support capital-intensive
infrastructure and protocol development projects and enable broader
retail investor participation in early-stage ventures.\244\ Some
commenters stated that the ``exit'' provisions of Regulation A are not
suited for covered investment contracts where, for example, the related
crypto project develops over time in a manner that transforms the
covered investment contract's status under the securities laws.\245\
One such commenter sought ``clarification that the issuer has no
remaining obligations pursuant to the investment contract under
Regulation A once its responsibilities via token delivery and network
maturity have been achieved.'' \246\ This commenter suggested revising
the Form 1-Z exit report to allow the issuer to include narrative
discussion about the development status of the crypto asset project, as
well as the status of the overlying investment contract.\247\
---------------------------------------------------------------------------
\243\ See, e.g., letters from CfPA (recommending increasing the
Tier 2 offering limit to $150 million); DealMaker (recommending
removal of the ``arbitrary ceiling'' on Regulation A); GDCA
(addressing the possibility of covered investment contract offerings
larger than current Regulation A offering amount limits); Nasdaq.
\244\ See letter from CfPA.
\245\ See, e.g., Hiro Meeting Agenda; letter from CrowdCheck
Law.
\246\ Hiro Meeting Agenda.
\247\ Id.
---------------------------------------------------------------------------
We agree with commenters that Regulation A provides a ``strong
foundation'' and a ``practical starting point,'' \248\ but we believe
that, in light of the limitations associated with using Regulation A in
the context of covered investment contract offerings, including those
raised by commenters, there is a need for a new, tailored exemption for
covered investment contract offerings. One fundamental legal limitation
is that covered investment contracts are not ``eligible securities''
under Regulation A.\249\ As such, issuers may not offer or
[[Page 54538]]
sell covered investment contracts pursuant to Regulation A. Even if
covered investment contracts were ``eligible securities'' under Rule
261, we agree with commenters that Regulation A's disclosure
requirements, as well as some of its existing offering mechanics and
conditions, limit the exemption's suitability for offerings of covered
investment contracts.
---------------------------------------------------------------------------
\248\ See supra note 229 and accompanying text.
\249\ Section 3(b)(3) of the Securities Act limits the
availability of any exemption adopted under section 3(b)(2) to
``equity securities, debt securities, and debt securities
convertible or exchangeable into equity interests, including any
guarantees of such securities.'' Based on this statutory limitation,
Regulation A defines eligible securities in Rule 261(c) as
``[e]quity securities, debt securities, and securities convertible
or exchangeable to equity interests, including any guarantees of
such securities, but not including asset-backed securities as such
term is defined in Item 1101(c) of Regulation AB.'' 17 CFR
230.261(c). As the Commission previously observed, ``[o]n the basis
of the statutory language [in section 3(b)(3)], it is unclear which
types of securities were meant to be excluded, although there is
some evidence that suggests the exemption is meant for ordinary--and
not exotic--securities.'' See Proposed Rule Amendments for Small and
Additional Issues Exemptions Under Section 3(b) of the Securities
Act, Release No. 33-9497 (Dec. 18, 2013) [79 FR 3926, 3935 (Jan. 23,
2014)] (``2013 Regulation A Proposing Release''). Given the novelty
of covered investment contracts, we believe they fall outside the
limitation of section 3(b)(3) of the Securities Act and the
definition of ``eligible securities'' in Rule 261.
---------------------------------------------------------------------------
Thus, we are proposing a fundraising exemption which is modeled, in
part, on Regulation A but is tailored in several ways to covered
investment contract offerings and their issuers, including with respect
to the disclosures required under the exemption. By both modeling the
proposed fundraising exemption on Regulation A and tailoring it for
covered investment contract offerings, we believe issuers' compliance
costs may be mitigated (to the extent those issuers or their advisors
are familiar with Regulation A) while, at the same time, avoiding the
practical concerns commenters expressed about relying on existing
Regulation A with respect to covered investment contract offerings.
2. Proposed Rules
The proposed fundraising exemption is intended to address many of
the concerns discussed in section II.C.1 above. In particular, we are
proposing the creation of rules (including forms and disclosure
requirements) tailored to the unique circumstances associated with
offerings of covered investment contracts.\250\ We believe this will
provide issuers of covered investment contracts with a framework to
more efficiently raise capital as needed for their business, including
to finance development of the subject crypto asset and associated
crypto network or associated crypto application.\251\ At the same time,
we are proposing conditions on the use of the fundraising exemption
that are designed to ensure that investors in these offerings will
remain adequately informed and protected. Thus, we believe the proposed
fundraising exemption is appropriate in the public interest and
consistent with the protection of investors.
---------------------------------------------------------------------------
\250\ Covered investment contracts issued pursuant to the
fundraising exemption would not be restricted securities or
otherwise subject to rule-based resale restrictions, and the
fundraising exemption would not unduly limit an issuer's ability to
sell covered investment contracts to retail investors (by, for
example, prohibiting sales to non-accredited investors). But see
proposed 17 CFR 228.300(c)(2)(i)(C) (limiting that amount of covered
investment contracts that an issuer can sell to non-accredited
investors under the fundraising exemption to 10 percent of the
greater of the purchaser's annual income or net worth (or in the
case of non-natural persons, the greater of revenue or net assets
for the most recently completed fiscal year)). These features would
help to avoid impediments to the development of network effects. See
supra notes 12-15 and accompanying text.
\251\ Although we expect that issuers that utilize the
fundraising exemption would be seeking to fulfill the essential
managerial efforts they represented or promised investors they would
engage in under the covered investment contracts, unlike the startup
exemption, there is no requirement that the issuer certify its
intention to do so in order to rely on the fundraising exemption. We
believe this difference between the two exemptions is warranted. The
primary purpose of the startup exemption is to provide issuers with
a regulatory runway during which they could work to fulfill their
representations or promises to engage in essential managerial
efforts under the covered investment contracts. By contrast, the
fundraising exemption is intended to facilitate larger capital
raising transactions for covered investment contract issuers. This
difference is reflected in the fact that the fundraising exemption
includes additional disclosure requirements (notably, financial
statement requirements) and ongoing reporting obligations that are
not included in the startup exemption.
---------------------------------------------------------------------------
At a high level, the fundraising exemption would operate as
follows: issuers relying on this exemption would be required to file
offering statements on EDGAR. These offering statements would include
an offering circular consisting of: (1) the same principles-based
narrative disclosure topics as required for issuers relying on the
proposed startup exemption (which are set forth in Rule 103); (2) a
discussion of the issuer's financial condition; and (3) financial
statements of the issuer, requiring varying levels of assurance
depending on offering size (falling in one of two tiers), as described
in section II.C.2.b.iii below. Issuers who have qualified offering
statements under this fundraising exemption would be subject to
periodic, current, and transition reporting requirements modeled on
analogous provisions in Regulation A, tailored to offerings of covered
investment contracts. The proposed fundraising exemption would include
additional provisions described below, consistent with Regulation A
offerings, including the ability to solicit non-binding indications of
interest (``test the waters'') and investment limitations. The proposed
fundraising exemption also would include provisions for the suspension
of the exemption in certain circumstances and would be subject to the
disqualification provision in Rule 104. Finally, consistent with the
startup exemption, the fundraising exemption would be non-exclusive (as
set forth in Rule 101(a)). As such, issuers would retain the ability to
raise capital in registered offerings, rely on other existing
exemptions, such as Regulation D or Regulation Crowdfunding, or rely on
the startup exemption.
The fundraising exemption would be set forth in subpart C of
Regulation Crypto Assets and would comprise the following rules:
proposed 17 CFR 228.300 (``Rule 300''), titled ``Scope of exemption'';
proposed 17 CFR 228.301 (``Rule 301''), titled ``Offering statement'';
proposed 17 CFR 228.302 (``Rule 302''), titled ``Offering circular'';
proposed 17 CFR 228.303 (``Rule 303''), titled ``Preliminary offering
circular''; proposed 17 CFR 228.304 (``Rule 304''), titled
``Solicitations of interest and other communications''; proposed 17 CFR
228.305 (``Rule 305''), titled ``Periodic and current reporting;
transition report''; proposed 17 CFR 228.306 (``Rule 306''), titled
``Suspension of the exemption''; and proposed 17 CFR 228.307 (``Rule
307''), titled ``Withdrawal or abandonment of offering statements.''
Each of these rules is discussed in more detail below. In addition to
the specific requests for comment in each subsection below, we also
seek feedback on the exemption as a whole and whether it is ``fit-for-
purpose'' for covered investment contract offerings and their issuers.
Request for Comment
75. Should we adopt a fundraising exemption modeled on Regulation A
but tailored to the unique circumstances associated with offerings of
covered investment contracts, as proposed?
76. Are there any portions of the fundraising exemption that we
either should not adopt or that we should change in the final rules? If
so, please identify those provisions along with any recommended changes
to the rule.
77. Are there any terms used in the fundraising exemption that we
either should define or otherwise modify in the final rules? If so,
please identify those terms along with any recommended changes to the
definitions.
78. Given the technological innovations and practices associated
with crypto assets, are there any modifications or additions to the
proposed rules we should consider to better facilitate transactions
under the fundraising exemption? Are there particular amendments to the
proposed rules governing offering communications and practices (e.g.,
[[Page 54539]]
solicitations, indications of interest, permitted communications, and
``testing the waters'' materials) that would be appropriate in light of
the unique characteristics of crypto assets and their associated crypto
networks and associated crypto applications? For example, should the
rule contemplate specific practices, such as preregistration of crypto
wallet addresses or other network specific actions, that could serve as
an indication of interest by a prospective investor seeking to purchase
a covered investment contract.
79. Should we amend the definition of ``eligible securities'' in 17
CFR 230.261(c) of Regulation A to provide that an ``investment
contract'' is not an ``eligible security'' thereunder.
a. Scope of Exemption (Rule 300)
i. Tier 1 and Tier 2 Offering Limits
Rule 300(a) would set forth a two-tier exemption from registration
pursuant to section 5 of the Securities Act for public offers and sales
of covered investment contracts. This two-tier approach is modeled on
Regulation A with the same offering limits as that exemption. Under
Tier 1 (``Tier 1 offerings''), issuers would be permitted to offer and
sell up to $20 million of covered investment contracts (which, for
purposes of the fundraising exemption, would be defined as ``eligible
securities'' \252\) in a 12-month period, including no more than $6
million offered by selling securityholders who are affiliates of the
issuer.\253\ Under Tier 2 (``Tier 2 offerings''), issuers would be
permitted to offer and sell up to $75 million of eligible securities in
a 12-month period, including no more than $22.5 million offered by
selling securityholders who are affiliates of the issuer.\254\ As
discussed in section II.C.2.b.iii below, a key difference between the
two tiers is that for Tier 1 offerings there is no financial statement
assurance requirement. Rule 300(a)(3) also would include an additional
limitation on secondary sales in the first year of reliance on the
fundraising exemption. Under this rule, the portion of the aggregate
offering price attributable to securities of selling securityholders
would not be permitted to exceed 30 percent of the aggregate offering
price of a particular offering in (i) the issuer's first offering under
this exemption or (ii) subsequent offerings under this exemption that
are qualified within one year of the qualification date of the issuer's
first offering.\255\
---------------------------------------------------------------------------
\252\ We believe it is appropriate to limit the fundraising
exemption to covered investment contracts because the disclosure and
other requirements of the exemption (including under proposed Form
1-CRYPTO, a description of which would be codified at 17 CFR
239.600) would be tailored to offerings of covered investment
contracts. As such, permitting offerings of securities beyond
covered investment contracts would undermine the objective of
creating an exemption that is specifically designed for offerings of
covered investment contracts.
\253\ Proposed 17 CFR 228.300(a)(1).
\254\ See proposed 17 CFR 228.300(a)(2).
\255\ See proposed 17 CFR 228.300(a)(3).
---------------------------------------------------------------------------
In addition, for purposes of the Tier 1 and Tier 2 offering limits
under Rule 300(a), the amount of eligible securities sold by the issuer
and the amount sold by its affiliates would be aggregated together.
This restriction is intended to avoid circumvention of the offering
limits by precluding multiple affiliated issuers (e.g., each of which
is under common control) from each selling an amount of eligible
securities that, individually, does not exceed the offering limits but,
when combined, would exceed those limits.\256\
---------------------------------------------------------------------------
\256\ See supra note 114 and accompanying text for a discussion
of how ``aggregate offering price'' and ``aggregate sales'' are
determined for purposes of the offering limits in both the startup
exemption and the fundraising exemption.
---------------------------------------------------------------------------
Rule 300(a) would permit Tier 2 offerings of up to $75 million in a
12-month period, which is the same limit as in Tier 2 of Regulation A.
Some commenters stated that issuers may desire to conduct covered
investment contract offerings exceeding the limits in Regulation A and
that a higher limit would accommodate issuers' funding needs for the
development of crypto asset projects.\257\ On the other hand, we note
that when the Commission amended Regulation A in 2015, it expressed
concerns that larger offering limits may increase risks to investors by
encouraging larger issuers to conduct Regulation A offerings in
instances where the disclosure required in registered offerings would
be more appropriate.\258\ We believe that limiting the fundraising
exemption to offerings of covered investment contracts coupled with the
other issuer eligibility criteria discussed in section II.C.2.a.ii
below sufficiently mitigates this risk. As such, we believe that the
proposed $75 million offering limit for Tier 2 offerings of covered
investment contracts appropriately balances issuers' potential capital
needs with the investor protection interests underlying the offering
limit.
---------------------------------------------------------------------------
\257\ See, e.g., letters from CfPA (suggesting an increase of
the offering limit for Tier 2 of Regulation A to at least $150
million to better align with ``with modern capital needs''); GDCA;
see also supra note 243 and accompanying text.
\258\ See 2015 Regulation A Release at section II.B.3.c.
---------------------------------------------------------------------------
To the extent issuers have capital raising needs beyond the $75
million limit in Tier 2 offerings, they may rely on other offering
pathways, including the proposed startup exemption. In addition, to
address potential concerns that offering limit amounts may become
diluted over time, Rule 102 would establish a process for the
Commission to periodically adjust the proposed Tier 1 and Tier 2
offering amount limitations as necessary for inflation. We are seeking
commenter input on the appropriateness of the proposed offering limits.
Request for Comment
80. Should the fundraising exemption include both Tier 1 and Tier 2
offerings as proposed or should the exemption consist of a single tier?
81. Should the fundraising exemption permit resales by selling
securityholders for offerings under Tier 1, Tier 2, or both tiers?
Should there be additional restrictions on an insider's ability to
participate as a selling securityholder under the proposed fundraising
exemption?
82. Are the proposed Tier 1 and Tier 2 offering limits appropriate?
Should we adopt higher or lower offering limits? For example, should
the Tier 1 offering limit be $25 million rather than $20 million?
83. Should issuers be permitted to conduct a Tier 2 offering if
they offer less than $20 million? In other words, should we require a
minimum offering amount of $20 million for Tier 2 offerings and, if so,
would this minimum offering amount provide any benefit to issuers or
investors or both?
84. Is it appropriate to apply the offering limits to both the
issuer and its affiliates, as proposed?
ii. Issuer Eligibility Criteria
Rule 300(b) would set forth the eligibility criteria that an issuer
would have to satisfy in order to rely on the fundraising exemption.
Under these criteria, the fundraising exemption would be available only
for an issuer that is an entity organized in the United States. The
proposed rule would also require that (i) a majority of the issuer's
executive officers or directors are U.S. citizens or residents, (ii)
more than 50 percent of the issuer's assets are located in the United
States, and (iii) the issuer's business is administered principally in
the United States.\259\ The fundraising exemption would not be
available to:
---------------------------------------------------------------------------
\259\ See proposed 17 CFR 228.300(b)(1).
---------------------------------------------------------------------------
A development stage company that either has no specific
business plan or purpose, or has indicated that its business plan is to
merge with or
[[Page 54540]]
acquire an unidentified company or companies; \260\
---------------------------------------------------------------------------
\260\ See proposed 17 CFR 228.300(b)(2).
---------------------------------------------------------------------------
An investment company registered or required to be
registered under the Investment Company Act of 1940 (``Investment
Company Act'') or a business development company as defined in section
2(a)(48) of the Investment Company Act; \261\ or
---------------------------------------------------------------------------
\261\ See proposed 17 CFR 228.300(b)(3).
---------------------------------------------------------------------------
An issuer that is or has been subject to any order of the
Commission entered pursuant to section 12(j) of the Exchange Act within
five years before the filing of the offering statement; provided,
however, that the exemption would be available to any issuer subject to
an order of the Commission entered pursuant to section 12(j) before the
date on which Rule 300 becomes effective, if the rule is ultimately
adopted.\262\
---------------------------------------------------------------------------
\262\ See proposed 17 CFR 228.300(b)(4). This carveout with
respect to section 12(j) orders entered prior to the proposed rule's
effectiveness is intended to be consistent with the similar carveout
in the disqualification provision in proposed Rule 104 with respect
to otherwise disqualifying events that occurred before the date on
which the proposed rule becomes effective. See supra section II.A.5.
---------------------------------------------------------------------------
In addition, in order to be eligible to rely on the fundraising
exemption, the issuer would have had to have filed with the Commission
all reports required to be filed, if any, pursuant to Rule 305 or
pursuant to section 13 or 15(d) of the Exchange Act during the two
years before the filing of the offering statement (or for such shorter
period that the issuer was required to file such reports), as
applicable.\263\ Finally, the issuer must have satisfied the applicable
requirements set forth in subpart A of Regulation Crypto Assets.\264\
This includes the disqualification provision in Rule 104.\265\
---------------------------------------------------------------------------
\263\ See proposed 17 CFR 228.300(b)(5).
\264\ See proposed 17 CFR 228.300(b)(6).
\265\ See supra section II.A.5 for a discussion of this
provision. As noted in that section, requests for waivers of
disqualification, where appropriate, would remain available to the
same extent they are available under Rule 262. See supra note 181
and accompanying text.
---------------------------------------------------------------------------
We believe that the proposed issuer eligibility requirements would
appropriately balance, on the one hand, ensuring that a sufficiently
broad scope of issuers can utilize the fundraising exemption so as to
increase investment opportunities for investors and capital formation
options for covered investment contract issuers with, on the other
hand, maintaining appropriate investor protections by limiting issuer
eligibility. Further, the issuer eligibility criteria are modeled in
large part on issuer eligibility criteria in Regulation A, with some
differences reflecting that this is a bespoke fundraising exemption
intended to be tailored to the unique circumstances of covered
investment contract offerings and issuers.\266\
---------------------------------------------------------------------------
\266\ For example, as compared to 17 CFR 230.251(b)(5) under
Regulation A, the proposed issuer eligibility criteria omit as
unnecessary a prohibition on issuers of interests in mineral rights.
Because this proposed fundraising exemption is limited to offerings
of covered investment contracts, based on the definitions of
``covered investment contract'' and ``crypto asset'' in Rule 100,
those mineral rights would not constitute eligible securities. As
such, excluding issuers of those rights in Rule 300(b) would be
duplicative.
---------------------------------------------------------------------------
Unlike the startup exemption,\267\ an issuer would be required to
be an entity organized under, and subject to, the laws of the United
States (or any State or territory of the United States or the District
of Columbia) to be eligible to conduct offerings under the fundraising
exemption. We believe this requirement in the fundraising exemption (as
compared to the startup exemption, which would allow the issuer to be
an entity, an individual, or a group of individuals or entities) is
appropriate in light of the much higher offering limit under this
exemption as compared to the startup exemption.
---------------------------------------------------------------------------
\267\ Under the startup exemption, an eligible issuer could be
an entity, an individual, or a group of individuals or entities. See
proposed 17 CFR 228.200(b)(2).
---------------------------------------------------------------------------
It also is appropriate given that an issuer would be required to
provide financial statements under the fundraising exemption (but would
not be required to do so under the startup exemption). We believe that
a financial statement requirement would become much more
administratively complex if an issuer could be an individual or a group
of unrelated individuals or entities (as is permitted under the startup
exemption). The ability to clearly define a reporting entity and
separate its economic activities from those of other reporting entities
is a fundamental concept in U.S. GAAP \268\ and, therefore, is
foundational to the preparation and presentation of the financial
statements meeting the requirements we propose in Part F/S to Form 1-
CRYPTO and other filings in conjunction with the fundraising exemption.
---------------------------------------------------------------------------
\268\ See FASB Statement of Financial Accounting Concept No. 8,
Conceptual Framework for Financial Reporting (Dec. 2021).
---------------------------------------------------------------------------
Similarly, unlike the startup exemption, we also believe it is
appropriate to require that (i) a majority of the issuer's executive
officers or directors are U.S. citizens or residents, (ii) more than 50
percent of the issuer's assets are located in the United States, and
(iii) the issuer's business is administered principally in the United
States. We believe these requirements--which are based on a portion of
the definition of ``foreign private issuer'' \269\--as well as the
requirement that the issuer be organized under, and subject to, the
laws of the United States (or any State or territory of the United
States or the District of Columbia), could serve as an additional
investor protection. Specifically, they would facilitate the ability of
the Commission and investors to seek recourse against issuers in the
event of fraud or other misconduct and provide domestic investors with
more easily accessible investment opportunities.\270\ Additionally, as
the Commission explained in the 2015 Regulation A Release, there may be
challenges and costs for less sophisticated investors resulting from
information asymmetries for foreign issuers and other categories of
issuers justifying the eligibility restriction.\271\ As the President's
Working Group and commenters noted, regulatory uncertainty in the
United States has encouraged crypto asset projects to move
overseas.\272\ We believe that this proposed requirement could help
reverse this trend and result in better protections for U.S. investors
and encourage domestic innovation and capital formation.
---------------------------------------------------------------------------
\269\ See 17 CFR 230.405; 17 CFR 240.3b-4(c)(2).
\270\ See, e.g., letter from Decentralization Research Center
(Mar. 10, 2025) (stating that ``US users should have access to the
broadest swath of opportunities to participate'').
\271\ See 2015 Regulation A Release at section III.C.1.
\272\ See, e.g., President's Working Group Report at 24-25
(noting that ``[m]any crypto firms turned their attention overseas
due to regulatory uncertainty,'' among other factors); letters from
a16z 4; Healthy Markets Association (Apr. 11, 2025); Lawrence J.
Trautman (July 11, 2025).
---------------------------------------------------------------------------
Some commenters and others suggested that we extend eligibility of
any proposed offering exemption to certain non-U.S. issuers and other
categories of issuers.\273\ The Commission sought comment in the 2013
Regulation A Proposing Release on whether to expand eligibility to use
Regulation A to foreign issuers ``with a substantial U.S. nexus.''
\274\ The Commission relatedly sought comment regarding the
implications of extending Regulation A eligibility to foreign private
issuers, particularly the applicability of Exchange Act section 10(b)
and Securities Act section 17(a) liability to foreign private
issuers.\275\ The Commission determined not to expand to non-Canadian
foreign issuers
[[Page 54541]]
eligibility to conduct Regulation A offerings before the Commission had
an opportunity to assess new market practices.\276\ We believe that
these considerations apply with equal force to the proposed fundraising
exemption. We invite comment on the appropriate scope of issuer
eligibility criteria in requests for comment below.
---------------------------------------------------------------------------
\273\ See, e.g., LeXpunK Regulation X Proposal, supra note 141;
letter from Nasdaq.
\274\ See 2013 Regulation A Proposing Release at 3932.
\275\ See id. at 3932 and n.72 (discussing Morrison v. Nat'l
Australia Bank Ltd., 130 S. Ct. 2869 (2020) and section 929P(b) of
the Dodd-Frank Act, Pub. L. 111-203, 929P(b)).
\276\ 2015 Regulation A Release at section II.B.1.c.
---------------------------------------------------------------------------
Request for Comment
85. Should we expand or otherwise modify the proposed issuer
eligibility requirements? Why or why not?
86. Should we expand the proposed issuer eligibility criteria to
permit Canadian issuers (or other types of foreign issuers) to rely on
the fundraising exemption?
87. To the extent that an issuer has relied on Regulation A to
issue securities, should the issuer be required to have filed all
reports required to be filed under Regulation A, if any, in order for
the issuer to rely on the fundraising exemption? Alternatively, should
a requirement to have filed all reports required under Regulation A, if
any, be limited to a specific time period (such as a certain number of
months or years immediately prior to the filing of an offering
statement under the fundraising exemption), in order for the issuer to
qualify for the fundraising exemption? Why or why not? If so, what
amount of time should be required and why?
iii. Offers and Sales; Investment Limitations
Rule 300(c) would include offering conditions that are
substantially similar to those in 17 CFR 251(d) of Regulation A. With
respect to offers, the rule would provide that, other than solicitation
of interest (i.e., testing the waters) communications under proposed
Rule 304, no offer of securities may be made unless an offering
statement has been filed with the Commission.\277\ After the offering
statement has been filed but prior to qualification, the following
offers would be permitted: oral offers, written offers under proposed
Rule 303, and solicitations of interest and other communications under
proposed Rule 304. In addition, offers would be permitted after the
offering statement has been qualified, but any written offers would be
required to be accompanied with or preceded by the most recent offering
circular filed with the Commission for the offering.\278\ As with
Regulation A, offerings conducted under the fundraising exemption after
qualification would be public offerings with no prohibition on general
solicitation.
---------------------------------------------------------------------------
\277\ Proposed 17 CFR 228.300(c)(1).
\278\ Proposed 17 CFR 228.300(c)(1)(iii). This requirement with
respect to written offers made after the offering statement has been
qualified mirrors the requirement in 17 CFR 230.251(d)(1)(iii) of
Regulation A. As with that rule, for written confirmations and
notices of allocation in the post-qualification period, issuers and
intermediaries may rely on the EDGAR filing of the final offering
circular to satisfy any delivery requirements that may apply under
Rule 300(c)(1)(iii). See 2015 Regulation A Release at n.260. This
approach also is consistent with 17 CFR 230.172(a) in the context of
registered offerings. Id. As discussed infra note 292 and
accompanying text, however, we are soliciting input as to the
proposed delivery requirements under the fundraising exemption.
---------------------------------------------------------------------------
With respect to sales, the rule would provide that no sale of
securities may be made until the offering statement has been
qualified.\279\ Additionally, if the issuer is not subject at the time
of sale to the reporting requirements in Rule 305(b), it must deliver a
preliminary offering circular at least 48 hours prior to sale to any
person that indicated an interest in purchasing securities in the
offering.\280\
---------------------------------------------------------------------------
\279\ Proposed 17 CFR 228.300(c)(2)(i)(A).
\280\ Proposed 17 CFR 228.300(c)(2)(i)(B).
---------------------------------------------------------------------------
Finally, if the purchaser is not an accredited investor as defined
in Rule 501 of Regulation D, the aggregate purchase price to be paid by
the purchaser cannot exceed 10 percent of the greater of the
purchaser's annual income or net worth (or in the case of non-natural
persons, the greater of revenue or net assets for the most recently
completed fiscal year).\281\ For this purpose, annual income and net
worth would be calculated as provided for in the definition of
``accredited investor'' contained in Rule 501 of Regulation D.\282\
Consistent with Regulation A, an issuer may rely on a representation of
the purchaser when determining compliance with this investment
limitation, provided that the issuer does not know at the time of sale
that the representation is untrue.\283\ This proposed investment
limitation is generally consistent with the analogous offering
condition in Regulation A.\284\ Unlike Regulation A, however, as an
additional investor protection to mitigate potential losses, the
investment limitation in the proposed fundraising exemption would apply
to all offerings irrespective of whether the offering is a Tier 1
offering or a Tier 2 offering. Additionally, unlike Regulation A, there
would not be a carveout for Tier 2 offerings of securities listed on a
registered national securities exchange.\285\
---------------------------------------------------------------------------
\281\ Proposed 17 CFR 228.300(c)(2)(i)(C).
\282\ Under Rule 501 of Regulation D, natural persons are
accredited investors if they (i) have an individual income in excess
of $200,000 in each of the two most recent years or joint income
with that person's spouse or spousal equivalent in excess of
$300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year, (ii) serve as
director, executive officer, or general partner of the issuer or
serve as any director, executive officer, or general partner of a
general partner of the issuer, or (iii) their individual net worth,
or joint net worth with that person's spouse or spousal equivalent,
exceeds $1,000,000 (excluding the value of their primary residence).
Additional criteria are contained in Rule 501 including, among other
things, that certain enumerated entities that satisfy an asset-based
test also qualify as accredited investors, while others, including
regulated entities such as banks and registered investment
companies, are not subject to the asset test.
\283\ Proposed 17 CFR 228.300(d)(2)(i)(D).
\284\ See 17 CFR 230.251(d)(2)(i)(C) and (D).
\285\ See 17 CFR 230.251(d)(2)(i)(C).
---------------------------------------------------------------------------
We believe that the proposed investment limitations serve an
important investor protection function. Consistent with the
Commission's adoption of investment limitations for Tier 2 offerings
under Regulation A, we believe that the proposed investment limitations
may help to mitigate the risk of potential losses for non-accredited
investors.\286\ In this regard, we believe that applying the investment
limitation to all offerings under the proposed fundraising exemption
would enhance investor protection and would be appropriate in the
context of offerings of covered investment contracts. We recognize that
one commenter stated that existing offering exemptions are not
efficient options for sales of covered investment contracts, in part,
because of investment limitations on non-accredited investors.\287\ We
do not believe that including the investment limitation in the
fundraising exemption will undermine the utility of the rules we are
proposing today. We note, for example, that despite its investment
limitations for non-accredited investors, Tier 2 of Regulation A
accounted for over 80 percent of the more than 1,400 Regulation A
offerings qualified during a nearly 9.5 year period ending December 31,
2024.\288\ We also note that, under our proposed rules, covered
investment contract issuers also could rely on the startup exemption to
the extent they are seeking to ensure that non-accredited investors
make up a particular portion of their investor base (e.g., if they
expect that such investors are more likely to participate in the
associated crypto network or associated
[[Page 54542]]
crypto application). Nonetheless, we are seeking commenters' input on
this aspect of the proposal.
---------------------------------------------------------------------------
\286\ See 2015 Regulation A Release at section II.B.4.
\287\ See letter from Coinbase.
\288\ See Angela Huang, Analysis of the Regulation A Market: A
Decade of Regulation A (May 2025), available at https://sec.gov/files/dera-reg-2505.pdf (``Across all metrics, Tier 2 accounted for
the vast majority of capital raising under Regulation A, including
over 80 percent of qualified offerings, over 90 percent of amounts
sought in qualified offerings, and over 95 percent of reported
proceeds.'').
---------------------------------------------------------------------------
Finally, Rule 300(c) would set forth several other offering
conditions with respect to sales that are consistent with 17 CFR
230.251(d)(ii) in Regulation A. The rule would provide that in a
transaction that represents a sale by the issuer or an underwriter, or
a sale by a dealer within 90 calendar days after qualification of the
offering statement, each issuer, underwriter or dealer selling in such
transaction must deliver to each purchaser from it, not later than two
business days following the completion of such sale, a copy of the
final offering circular, subject to the following provisions:
If the sale was by the issuer and was not effected by or
through an underwriter or dealer, the issuer is responsible for
delivering the final offering circular as if the issuer were an
underwriter;
For continuous or delayed offerings under Rule 300(c)(3),
the 90-calendar day period for dealers must commence on the day of the
first bona fide offering of securities under such offering statement;
If the security is listed on a registered national
securities exchange, no offering circular need be delivered by a dealer
more than 25 calendar days after the later of the qualification date of
the offering statement or the first date on which the security was bona
fide offered to the public;
No offering circular need be delivered by a dealer if the
issuer is subject, immediately prior to the time of the filing of the
offering statement, to the reporting requirements of Rule 305(a); and
The final offering circular delivery requirements set
forth in this rule may be satisfied by delivering a notice to the
effect that the sale was made pursuant to a qualified offering
statement that includes a link to where the final offering circular, or
the offering statement of which such final offering circular is part,
may be obtained on EDGAR and contact information sufficient to notify a
purchaser where a request for a final offering circular can be sent and
received in response.
As with Regulation A, these requirements reflect an ``access equals
delivery'' model for final offering circulars when sales are made on
the basis of offers conducted during the prequalification period and
the final offering circular is filed and available on EDGAR.\289\ Under
this model, where sales occur after qualification on the basis of
offers made using a preliminary offering circular, issuers,
underwriters, and dealers can presume that investors have access to the
internet and may satisfy their delivery requirements for the final
offering circular by filing it on EDGAR. Issuers are, however, required
to include a notice in any preliminary offering circular that will
inform potential investors that the issuer may satisfy its delivery
obligations for the final offering circular electronically.\290\
Further, as with Regulation A, ``electronic-only'' offerings would be
permitted under the proposed fundraising exemption provided that
issuers and intermediaries comply with applicable requirements.\291\
---------------------------------------------------------------------------
\289\ See 2015 Regulation A Release at 21822; see also
Securities Offering Reform, Release No. 33-8591 (July 19, 2005) [70
FR 44722 (Aug. 3, 2005)].
\290\ See proposed 17 CFR 228.303(a).
\291\ See 2015 Regulation A Release at 21823. An electronic-only
offering is an offering in which investors are permitted to
participate only if they agree to accept the electronic delivery of
all documents and other information in connection with the offering.
See Use of Electronic Media, Release No. 34-42728 (Apr. 28, 2000)
[65 FR 25843 (May 4, 2000)]; Use of Electronic Media by Broker-
Dealers, Transfer Agents and Investment Advisers for Delivery of
Information, Release No. 34-37182 (May 9, 1996) [61 FR 24644 (May
15, 1996)]; Use of Electronic Media for Delivery Purposes, Release
No. 33-7233 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)] (``The
Commission would view information distributed through electronic
means as satisfying the delivery or transmission requirements of the
federal securities laws if such distribution results in the delivery
to the intended recipients of substantially equivalent information
as these recipients would have had if the information were delivered
to them in paper form.'' (internal citation omitted)). Potential
issuers could consult the foregoing releases when considering
whether a potential medium of electronic delivery satisfies the
proposed requirements. For example, we recognize that there may be
new blockchain-based technologies that may be used as mediums to
satisfy the electronic delivery requirements.
---------------------------------------------------------------------------
Broadly speaking, the proposed delivery requirements are modeled on
the delivery requirements in Regulation A. Those requirements, in turn,
were designed to be consistent with the requirements for registered
offerings.\292\ Although we believe there are benefits associated with
aligning the proposed delivery requirements with these existing
delivery requirements, we are soliciting input as to whether an
alternative approach is warranted with respect to the proposed
fundraising exemption.
---------------------------------------------------------------------------
\292\ See, e.g., 2015 Regulation A Release at 21822 (``The
expanded use of the internet and continuing technological
developments suggest that we should update the final offering
circular delivery method for Regulation A in a manner that is
consistent with similar updates to delivery requirements for
registered offerings.'').
---------------------------------------------------------------------------
Request for Comment
88. Should the fundraising exemption include the proposed delivery
requirements, which are modeled on the delivery requirements in
Regulation A (which were, in turn, modeled on the requirements for
registered offerings)? Alternatively, is a different approach warranted
with respect to the proposed fundraising exemption and, if so, how
should that approach operate?
89. Should we revise the fundraising exemption such that an EDGAR
filing by itself (i.e., without a notice to investors) satisfies the
delivery requirements?
90. Given the unique technological attributes associated with
crypto assets and the blockchain-based technologies that issuers may
want to use as mediums to satisfy the electronic delivery requirements,
should the Commission clarify how electronic means may satisfy the
delivery requirements under the proposed fundraising exemption?
iv. Continuous or Delayed Offerings
Rule 300(c)(3) would permit continuous or delayed offerings under
the fundraising exemption, modeled on the analogous provision in
Regulation A, and tailored to offerings of covered investment
contracts. The Regulation A continuous and delayed offering framework,
most recently amended by the Commission in 2015, is based upon 17 CFR
230.415 (``Rule 415''), but its scope is limited to permissible
Regulation A offerings. The Commission adopted Rule 415 in 1983 to
promote efficiency and flexibility with respect to capital raising
transactions by permitting continuous or delayed offerings in certain
contexts.\293\ Rule 300(c)(3) is intended to achieve these same
benefits and would permit the following continuous or delayed
offerings: (A) offerings of covered investment contracts by selling
securityholders; (B) offerings of covered investment contracts pursuant
to an employee benefit plan; (C) offerings of covered investment
contracts to be issued upon the exercise of outstanding options,
warrants, or rights; (D) offerings of covered investment contracts that
are to be issued on conversion of other outstanding securities; (E)
offerings of covered investment contracts pledged as collateral; and
(F) certain continuous offerings of covered investment contracts.
---------------------------------------------------------------------------
\293\ See 2013 Regulation A Proposing Release at 3953 (citing
Shelf Registration, Release No. 33-6499 (Nov. 17, 1983) [48 FR 52889
(Nov. 23, 1983)]).
---------------------------------------------------------------------------
Rule 300(c)(3)(i)(A) would permit selling securityholders to
participate in offerings qualified under the fundraising
[[Page 54543]]
exemption, subject to the limitations on offering amount in Rule
300(a). Consistent with the Commission's rationale for permitting
selling securityholder participation in Regulation A offerings, we
believe that permitting selling securityholder participation in
offerings under this proposed exemption may decrease the cost of
capital for issuers, encourage investment in an innovative and rapidly
growing sector of the economy, and facilitate liquidity for existing
securityholders and new investors in the offering.\294\ Commenters and
others generally supported selling securityholder participation in
covered investment contracts offerings, subject to limitations.\295\
Further, permitting selling securityholder participation in offerings
under the proposed exemption may facilitate a more widespread
distribution of the subject crypto assets, which in turn may help
issuers more efficiently meet development targets. This would be
consistent with the principles underlying Regulation Crypto Assets.
Unduly restricting selling securityholder participation in offerings
under this fundraising exemption may also greatly offset the utility of
this exemption for issuers relative to other public or private capital
raising methods, which risks undermining the policy objectives in
creating a bespoke offering exemption.
---------------------------------------------------------------------------
\294\ See 2013 Regulation A Proposing Release at section II.B.3.
\295\ See, e.g., LeXpunK Regulation X Proposal at nn.30-31 and
accompanying text (addressing concerns with ``dump on retail,''
stating ``[w]e are reluctant to facilitate Insider exit liquidity
due to the risks it imposes on retail investors; however, we would
prefer that these sales occur transparently and this resale limit is
consistent with that provided in existing securities laws.
Additionally, these resale limits would provide more certainty
around underwriter liability for early purchasers. Selling
tokenholders would also be limited in their participation by any
pre-existing vesting or lockup requirements attached to their
Tokens, which would need to be disclosed at the time of the
offering.'').
---------------------------------------------------------------------------
We acknowledge that some of the concerns expressed by commenters in
prior Regulation A rulemakings about secondary sales may similarly
apply to the fundraising exemption.\296\ These commenters stated that
certain insiders should be restricted from participating in Regulation
A offerings because those insiders had superior negotiating power at
the time of their initial investment and greater access to information
relative to new, unaffiliated investors and could therefore ``offload
their investment on the general public.'' \297\ Additionally, these
commenters expressed the view that, to the extent selling
securityholders are participating in the offering, this would reduce
the net proceeds available to the issuer, thus undermining the capital
raising benefits of the fundraising exemption.\298\ Commenters that
provided input to the Crypto Task Force suggested we impose insider
restrictions specific to covered investment contract issuers. For
instance, one commenter suggested a limitation on covered investment
contract sales by insiders until the crypto asset network or
application has become sufficiently decentralized.\299\ The goal of
such a limitation would be to help ``ensure [insiders] have continued
economic incentive to complete the project.'' \300\ Another commentator
supported lockup periods for large holders and insiders to prevent a
``dump on retail'' by these large holders and insiders using other
exemptions to sell significant amounts of crypto assets shortly after a
public offering.\301\
---------------------------------------------------------------------------
\296\ See 2013 Regulation A Proposing Release at section II.B.3;
2015 Regulation A Release at section II.B.3.
\297\ 2013 Regulation A Proposing Release at 3937.
\298\ See id.
\299\ See letter from Coinbase.
\300\ Id.
\301\ LeXpunK Regulation X Proposal at n.36.
---------------------------------------------------------------------------
We believe these concerns would be mitigated, at least in part, by
the limitations on securityholders in Rule 300(a) and the principles-
based disclosure requirement in Rule 103(b)(4) regarding (i) the
material aspects of the issuer's management and related persons; (ii)
the material aspects of any conflicts of interest or related person
transactions involving the issuer; and (iii) whether related persons
are subject to any transfer or resale restriction(s) with respect to
the covered investment contract or subject crypto asset and, if so, the
material terms of such restriction(s). These proposed requirements
would provide important investor protections while still facilitating
liquidity for securityholders and preserving the utility of the
proposed fundraising exemption for capital formation. That said, we
invite comment below on the appropriate scope of restrictions on
selling securityholder participation in offerings under the proposed
fundraising exemption.
Rule 300(c)(3)(i)(B) would permit continuous or delayed offerings
with respect to covered investment contracts that are to be offered and
sold pursuant to an employee benefit plan of the issuer. This provision
would be substantially identical to the analogous provision in 17 CFR
230.251(d)(3)(i)(B) of Regulation A. Although we are not aware of the
extent to which this practice is being or would be used by covered
investment contract issuers, we do not believe there is a compelling
basis on which to omit this provision from the fundraising exemption.
That said, 17 CFR 230.251(3)(i)(B) of Regulation A permits offerings of
securities that are to be offered and sold pursuant to a dividend or
interest reinvestment plan. Because the defined scope of the terms
``covered investment contract'' and ``crypto asset'' would exclude
dividend- or interest-bearing assets,\302\ we have excluded those
references from proposed Rule 300(c)(3)(i)(B).
---------------------------------------------------------------------------
\302\ See supra section II.A.1.b.
---------------------------------------------------------------------------
Rule 300(c)(3)(i)(C), (D), and (E) would permit continuous or
delayed offerings with respect to (1) covered investment contracts that
are to be issued on exercise of outstanding options, warrants, or
rights; (2) covered investment contracts that are to be issued on
conversion of other outstanding securities; and (3) covered investment
contracts that are pledged as collateral. These provisions would be
substantially identical to the analogous provisions in 17 CFR
230.251(d)(3)(i)(C), (D), and (E) of Regulation A. As noted in section
II.A.1.b above, the only securities that may be offered under the
fundraising exemption (or any other exemption in Regulation Crypto
Assets) are covered investment contracts. And, as noted in section
II.A.1.b above, the definition of ``covered investment contract''
excludes investment contracts that involve any other type of security,
such as a stock or bond that is convertible. Nonetheless, it is
possible that an issuer would offer an option, warrant, right, or
convertible security that is convertible into a covered investment
contract. Although the overlying security would not be eligible to use
the fundraising exemption, the issuer may be able to rely on the
fundraising exemption with respect to the covered investment contracts
into which those overlying securities are convertible. In those
circumstances, the issuer may be able to utilize Rule 300(c)(3)(i)(C)
and (D).
Finally, Rule 300(c)(3)(i)(F) would permit continuous or delayed
offerings with respect to covered investment contracts the offering of
which will be commenced within two business days after the
qualification date, will be made on a continuous basis, may continue
for a period in excess of 30 calendar days from the date of initial
qualification, and will be offered in an amount that, at the time the
offering statement is qualified, is reasonably expected to be offered
and sold within two years from the initial qualification date. As with
[[Page 54544]]
the other provision of Rule 300(c)(3), this provision would largely
mirror the analogous provision in 17 CFR 230.251(d)(3)(i)(F) of
Regulation A.\303\ Among other things, similar to Regulation A,
offerings under proposed Rule 300(c)(3)(i)(F) would be conditioned on
the issuer being current in its annual and semiannual reporting
obligations at the time of sale. Unlike Regulation A, however, this
requirement would apply irrespective of Tier, as we propose that both
Tier 1 and Tier 2 issuers be subject to ongoing reporting obligations
as discussed in section II.C.2.e below.
---------------------------------------------------------------------------
\303\ As compared to Regulation A, however, the proposed rule
would require the offering to commence within two business days
after the qualification date rather than two calendar days. The use
of ``business days'' is intended to avoid a situation where the rule
would require an offering to commence on a weekend or Federal
holiday.
---------------------------------------------------------------------------
Several commenters recommended that the Commission should permit
delayed or at the market offerings of covered investment
contracts.\304\ One commenter stated that permitting delayed and at the
market offerings of covered investment contracts would allow issuers to
match supply and demand, noting that ``market dynamics often require
the ability to adjust offering terms in real time.'' \305\ Other
commentators have proposed a ``token shelf'' offering similar to short-
form registration on Form S-3 or Form F-3.\306\
---------------------------------------------------------------------------
\304\ See letter from TDC 2; LeXpunK Regulation X Proposal,
supra note 141.
\305\ Letter from TDC 2.
\306\ See LeXpunK Regulation X Proposal at 13-14. This proposal
would involve offerings through an intermediary using a short form
statement consisting of a facing page, prior filings and ongoing
reports incorporated by reference, signatures, and pricing and other
information related to the offering.
---------------------------------------------------------------------------
Rule 415 permits at the market offerings only for issuers eligible
to conduct primary offerings on Form S-3 or Form F-3.\307\ Under Rule
415, an at the market offering is ``an offering of equity securities
into an existing trading market for outstanding shares of the same
class at other than a fixed price.'' The Commission prohibited at the
market offerings in Regulation A, stating at that time that it was
premature to permit at the market offerings under Regulation A because
a market for Regulation A securities had not yet developed.\308\ The
Commission also expressed concern with the challenge of administering
maximum offering limits in an offering sold at fluctuating market
prices.\309\
---------------------------------------------------------------------------
\307\ 17 CFR 230.415(a)(4).
\308\ See 2015 Regulation A Release at 21840.
\309\ See id.
---------------------------------------------------------------------------
We note that some of the considerations that led the Commission not
to permit delayed and at the market offerings under Regulation A
similarly apply to offerings under the proposed fundraising exemption.
Accordingly, the proposed fundraising exemption does not permit delayed
or at the market offerings beyond what is currently permitted under
Regulation A (and as described in this section).\310\ We invite
comment, however, on the appropriate scope of continuous and delayed
offerings under the fundraising exemption, including whether we should
expand offerings permitted under the proposed fundraising exemption to
include delayed offerings, at the market offerings, or other mechanisms
to promote flexibility in offerings of covered investment contracts.
---------------------------------------------------------------------------
\310\ Proposed Rule 300(c)(3)(ii) would provide that at the
market offerings, by or on behalf of the issuer or otherwise, are
not permitted under the fundraising exemption. The rule would
further state that the term ``at the market offering'' means an
offering of securities at other than a fixed price. The proposed
provision is intended to require offerings under the fundraising
exemption to be made at a specified dollar amount per security and,
by contrast, prohibiting variable pricing.
---------------------------------------------------------------------------
Request for Comment
91. Should we permit delayed offerings under the proposed
fundraising exemption? Should we consider a ``token shelf'' for
secondary or follow-on offerings? If so, under what circumstances? What
aspects of offerings of covered investment contracts make delayed
offerings appropriate?
92. Should we permit at the market offerings under the proposed
fundraising exemption? If so, under what circumstances? Consistent with
Rule 415, should we require that there be an ``existing trading
market'' for the covered investment contracts? If so, how should we
determine what constitutes an existing trading market?
93. As discussed in footnote 310, proposed Rule 300(c)(3)(ii) is
intended to require offerings under the fundraising exemption to be
made at a specified dollar amount per security and, by contrast,
prohibiting variable pricing. If we continue to prohibit at the market
offerings under the fundraising exemption, should we otherwise permit
variable pricing?
94. Proposed Rule 300(c)(3)(ii) largely mirrors the corresponding
provision in Regulation A. Should we revise the proposed rule to
clarify our view, as provided in footnote 310, that the proposed rule
would require offerings under the fundraising exemption to be made at a
specified dollar amount per security and, by contrast, prohibit
variable pricing?
vi. Confidential Treatment
Finally, Rule 300(d) would provide that a request for confidential
treatment may be made under 17 CFR 230.406 for information required to
be filed, and under 17 CFR 200.83 for information not required to be
filed. This provision would mirror the analogous provision in 17 CFR
230.251(e) of Regulation A.
b. Offering Statement (Form 1-CRYPTO and Rules 301, 306, and 307)
Offering statements filed under Regulation Crypto Assets would
utilize a new Form 1-CRYPTO (with a description codified at 17 CFR
239.600), which uses Form 1-A as a model but is tailored to offerings
of covered investment contracts and is attached hereto as Appendix A.
Similar to Form 1-A, proposed Form 1-CRYPTO would consist of three
parts:
Part I: An eXtensible Markup Language (``XML'') based
fillable form with key information about the issuer and offering.
Part II: Attachments containing the body of the disclosure
document and financial statements (the offering circular); and
Part III: Attachments containing the signatures, exhibit
index, and exhibits to the offering statement.
As discussed above,\311\ Rule 101(c) would require that all
documents filed or otherwise provided to the Commission pursuant to
Regulation Crypto Assets, including offering statements and other
documents required under the fundraising exemption, be submitted or
filed electronically on EDGAR.
---------------------------------------------------------------------------
\311\ See supra section II.A.2.b.
---------------------------------------------------------------------------
i. Part I of Form 1-CRYPTO (Notification)
Part I of proposed Form 1-CRYPTO serves as a notice of basic
information about the issuer and the proposed offering. Issuers would
file Part I of proposed Form 1-CRYPTO with the Commission via EDGAR in
XML specific to proposed Form 1-CRYPTO (``Form 1-CRYPTO-specific
XML''). Issuers would have two ways to file proposed Form 1-CRYPTO with
the Commission. An issuer could use a fillable web form the Commission
would provide on EDGAR to input the proposed disclosures for Part I of
Form 1-CRYPTO, which EDGAR would convert to the Form 1-CRYPTO-specific
XML. Alternatively, an issuer could use its own software tool to file
Part I of Form 1-CRYPTO to EDGAR directly by
[[Page 54545]]
following EDGAR's Form 1-CRYPTO technical specifications. The
information contained in Part I would be publicly available on EDGAR as
an online data cover sheet but not otherwise required to be distributed
to investors.
Part I of Form 1-CRYPTO would require information be provided in
response to the following items:
Item 1 (Issuer Information) would require the issuer to
disclose its identity and certain contact information.
Item 2 (Summary Information Regarding the Offering and
Other Current or Proposed Offerings) would require the issuer to
disclose the number of units of covered investment contracts offered,
the number of covered investment contracts already outstanding, the
price per covered investment contract, proposed sales by selling
securityholders and affiliates, and estimated aggregate sales of any
concurrent offerings under this proposed fundraising exemption. As
compared to the corresponding item in Form 1-A, Item 2 would not
solicit information about the types of securities being offered, as
only covered investment contracts may be offered under Form 1-CRYPTO.
Request for Comment
95. Should we require the information in Part I of Form 1-CRYPTO as
proposed? Would that information benefit investors and/or other market
participants? If so, please describe how such information would be
beneficial.
96. Are there other information requirements (other than those in
Part I of Form 1-A) that we should include in Part I of Form 1-CRYPTO?
Alternatively, should we reduce (or eliminate entirely) the proposed
information requirements in Part I of Form 1-CRYPTO?
97. Are there certain types of organizational structures that
cannot satisfy the disclosure requirement to provide a jurisdiction of
incorporation or formation (if the issuer is or includes an entity)?
For example, could decentralized unincorporated nonprofit associations
satisfy this requirement? If not, should we revise this requirement to
accommodate any such organizational structures?
98. Should we require disclosure of the address of the issuer's
principal executive office only if the issuer has a principal executive
office, as proposed in Form 1-CRYPTO? If an issuer does not have a
principal executive office, should we require the issuer to provide a
different address (for example, the address for the issuer's agent for
service of process)?
99. Should we require the disclosures in Part I of proposed Form 1-
CRYPTO to be submitted using a different structured data language than
Form 1-CRYPTO-specific XML? Why or why not? If another structured data
language would be more appropriate, please identify which one, and
explain why.
ii. Part II of Form 1-CRYPTO (Offering Circular)
Part II of Form 1-CRYPTO would consist of the following substantive
offering circular disclosure requirements: \312\
---------------------------------------------------------------------------
\312\ Part II of Form 1-CRYPTO would consist of an attachment to
Part I containing the body of the disclosure document and financial
statements, formatted in HTML, as would be further provided in the
EDGAR Filer Manual, to be compatible with EDGAR.
---------------------------------------------------------------------------
Non-financial Disclosure: Items 1 through 12 would consist
of the following non-financial disclosure requirements: Cover Page of
Offering Circular (Item 1), which would require the cover page of the
offering circular to include some fundamental details regarding the
issuer and the offering; \313\ Table of Contents (Item 2), which would
require the second page of the offering circular to include a table of
contents; Covered Investment Contract (Item 3), which would require the
issuer to furnish the information required by Rule 103(b)(1); Offering
(Item 4), which would require the issuer to furnish the information
required by Rule 103(b)(2); Subject Crypto Asset (Item 5), which would
require the issuer to furnish the information required by Rule
103(b)(3); Management, Related Persons, and Conflicts of Interest (Item
6), which would require the issuer to furnish the information required
by Rule 103(b)(4); Associated Crypto Network/Application; Plan of
Development (Item 7), which would require the issuer to furnish the
information required by Rule 103(b)(5); Security; Source Code (Item 8),
which would require the issuer to furnish the information required by
Rule 103(b)(6); Subject Crypto Asset Economics and Allocations (Item
9), which would require the issuer to furnish the information required
by Rule 103(b)(7); Governance (Item 10), which would require the issuer
to furnish the information required by Rule 103(b)(8); Subject Crypto
Asset Ecosystem (Item 11), which would require the issuer to furnish
the information required by Rule 103(b)(9); and Risk Factors (Item 12),
which would require the issuer to furnish the information required by
Rule 103(b)(10). The principles-based non-financial information
requirements in Rule 103 are discussed in detail in section II.A.4
above.
---------------------------------------------------------------------------
\313\ Those fundamental details include, for example, the name
of the issuer, the full mailing address of the issuer's principal
executive offices (if any) and the issuer's telephone number and (if
applicable) website address, the date of the offering circular, and
the title and amount of securities offered.
---------------------------------------------------------------------------
Discussion of Financial Condition (Item 13): Additionally,
the offering circular would be required to contain a narrative
discussion of the issuer's financial condition modeled on the narrative
discussion required in 17 CFR 227.201(s) of Regulation Crowdfunding.
This discussion of the issuer's financial condition would include, to
the extent material, changes in financial condition, liquidity, capital
resources, and historical results of operations. The narrative would
cover each period for which financial statements of the issuer are
provided. Issuers also would be required to discuss any material
changes or trends known to management in the financial condition and
results of operations of the issuer subsequent to the period for which
financial statements are provided. The proposed Item 13 includes
instructions to guide the narrative discussion for those issuers with
no prior operating history and for those issuers with an operating
history.
Financial Statements (Part F/S): Form 1-CRYPTO would
require that offering statements include financial statements prepared
in accordance with U.S. GAAP meeting the requirements set forth in
proposed Part F/S of Part II to Form 1-CRYPTO. Further, financial
statements will be subject to assurance requirements based on whether
the offering statement relates to a Tier 1 offering or a Tier 2
offering. For Tier 1 offerings, there is no financial statement
assurance requirement. As we discuss in section II.C.2.b.iii below, to
the extent the issuer has obtained an audit of its financial statements
performed by an independent public accountant in accordance with either
U.S. Generally Accepted Auditing Standards (``U.S. GAAS'') or the
standards of the Public Company Accounting Oversight Board (``PCAOB''),
the issuer would be required to file the signed audit report
accompanying the audited financial statements. For Tier 2 offerings,
the financial statements included in the offering statement must be
audited in accordance with either U.S. GAAS or PCAOB standards by an
auditor that is independent under 17 CFR 210.2-01 (``Rule 2-01'') of
Regulation S-X.
As noted previously in this section, Form 1-CRYPTO would
incorporate the principles-based narrative disclosure requirements in
Rule 103 rather than create a separate set of non-financial
[[Page 54546]]
disclosures. These principles-based disclosure requirements are
tailored to covered investment contract offerings and issuers. These
disclosures are based on the unique attributes of these offerings and
issuers and are designed to capture the information most relevant to
investors in these offerings.
Item 13 of Form 1-CRYPTO also would require disclosure of the
issuer's financial condition. Given the potential size of the offering
amount under this exemption (i.e., up to $75 million in a 12-month
period), we believe that this additional disclosure would be important
to investors in capital-raising transactions involving the offering of
covered investment contracts. We believe the proposed requirement,
modeled on an analogous provision in Regulation Crowdfunding, is more
appropriate for covered investment contract offerings and issuers than
the Form 1-A requirement to provide a full Management's Discussion and
Analysis of Financial Condition and Results of Operations.\314\ Similar
to Regulation Crowdfunding issuers, we expect that many of the issuers
who would utilize the proposed fundraising exemption would be in an
early stage of development, with a narrower operational focus and with
less complex operations relative to reporting companies and issuers
conducting registered offerings.\315\ Moreover, this principles-based
discussion is intended to provide, in a clear and understandable
manner, management's perspective on the issuer's operations and
financial results, including information about liquidity and capital
resources and known material trends or uncertainties. We believe,
therefore, that the flexible nature of this principles-based disclosure
requirement would elicit material information that investors need to
make informed investment decisions with respect to offerings by both
mature and early-stage issuers.\316\ We discuss more fully the proposed
financial statements and assurance requirements in section II.C.2.b.iii
below.
---------------------------------------------------------------------------
\314\ See Item 9, Management's Discussion and Analysis of
Financial Condition and Results of Operations in Part II of Form 1-
A; see also 17 CFR 229.303 (Item 303 of Regulation S-K).
\315\ See Crowdfunding Adopting Release at section II.B.a.2(a).
\316\ See supra section II.B.2.b.ii. (discussing proposed
instructions for narrative disclosure that would recognize that
issuers may or may not have a prior operating history).
---------------------------------------------------------------------------
Request for Comment
100. Should we require the information in Part II of Form 1-CRYPTO
as proposed? Is there information that we should require to be
disclosed under Part II other than what we have proposed? For example,
is there any information required to be provided under Part II of Form
1-A that also should be required to be disclosed under Part II of Form
1-CRYPTO?
101. As noted in this section above, the information requirement in
Item 13 is modeled on the narrative discussion required in 17 CFR
227.201(s) of Regulation Crowdfunding. Is 17 CFR 227.201(s) an
appropriate model? Should we instead require a Management's Discussion
and Analysis of Financial Condition and Results of Operations similar
to Item 9 of Form 1-A?
102. As an alternative to both the approach taken in proposed Item
13 of Form 1-CRYPTO and the approach taken in Item 9 of Form 1-A,
should the information requirement in Item 13 instead be more closely
tailored to reflect the characteristics of covered investment
contracts? If so, what should such alternative discussion require? For
example, rather than focusing on the financial condition of the issuer,
should such requirements focus on financial matters related to the
development of the associated crypto network or associated crypto
application?
103. Rather than cross-referencing the disclosure requirements in
proposed Rule 103, should we set forth the disclosure requirements
directly in Form 1-CRYPTO? Would that facilitate compliance or
otherwise reduce burdens for issuers?
iii. Financial Statements and Assurance Requirements
Part F/S of Part II to Form 1-CRYPTO would require that offering
statements include financial statements prepared in accordance with
U.S. GAAP.\317\ The proposed financial statements requirements are
substantially similar to the corresponding requirements under Form 1-
A.\318\ Under Part F/S of Form 1-CRYPTO, issuers using the fundraising
exemption would be required to provide the following financial
statements prepared in accordance with U.S. GAAP for the issuer or the
issuer and its predecessors or any businesses to which the issuer is a
successor: consolidated balance sheets and statements of comprehensive
income, cash flows, and changes in stockholder's equity.
---------------------------------------------------------------------------
\317\ Financial statements included in offerings under
Regulation Crowdfunding similarly must be prepared in accordance
with U.S. GAAP. See 17 CFR 227.201, instruction 3 to paragraph (t).
\318\ See Part F/S of Form 1-A.
---------------------------------------------------------------------------
Consistent with the requirements in Regulation A offerings, we
propose the following requirements for the age of the balance sheet at
the date of filing and at qualification:
If the filing is made, or the offering statement is
qualified, during the period from inception until three months after
reaching the annual balance sheet date for the first time, include a
balance sheet as of a date within nine months of filing or
qualification.
If the filing is made, or the offering statement is
qualified, within three months after the most recently completed fiscal
year end, include a balance sheet as of the two fiscal year ends
preceding the most recently completed fiscal year end and an interim
balance sheet as of a date no earlier than six months after the date of
the most recent fiscal year-end balance sheet that is required.
If the filing is made, or the offering statement is
qualified, more than three months but no more than nine months after
the most recently completed fiscal year end, include a balance sheet as
of the two most recently completed fiscal year ends.
If the filing is made, or the offering statement is
qualified, more than nine months after the most recently completed
fiscal year end, include a balance sheet as of the two most recently
completed fiscal year ends and an interim balance sheet as of a date no
earlier than six months after the most recently completed fiscal year
end.
Additionally, and consistent with the requirements in Regulation A
offerings, we propose that the issuer include consolidated statements
of comprehensive income (either in a single continuous financial
statement or in two separate but consecutive financial statements; or a
statement of net income if there was no other comprehensive income),
cash flows, and changes in stockholders' equity for each of the two
fiscal years preceding the date of the most recent balance sheet being
filed or such shorter period as the issuer has been in existence.
As with Regulation A, these age of financial statements
requirements are intended to align with the timing of the proposed
ongoing updating requirements.\319\ Further, the proposed requirements
would ensure that the financial statements included in the offering
statement at the date of filing and qualification are no older than
nine months.
---------------------------------------------------------------------------
\319\ See 2015 Regulation A Release at section II.C.3.b.(2). The
proposed ongoing updating requirements are discussed in greater
detail in section II.C.2.e. below.
---------------------------------------------------------------------------
Consistent with Regulation A, in Tier 1 offerings under the
proposed fundraising exemption, issuers would
[[Page 54547]]
need to follow the rules for providing the appropriate financial
statements set forth in proposed Part F/S of Form 1-CRYPTO, but
financial statements for Tier 1 offerings would not need to be prepared
in accordance with Regulation S-X. In Tier 2 offerings, issuers would
be required to follow the financial statement requirements of Article 8
of Regulation S-X, as if the issuer conducting the Tier 2 offering were
a smaller reporting company (unless otherwise noted). Further,
consistent with the treatment of issuers in Regulation A offerings and
emerging growth companies under section 102(b)(1) of the JOBS Act, we
propose to permit issuers, where applicable, to delay complying with
new or revised financial accounting standards with election and
disclosure requirements as is permitted in Regulation A offerings.\320\
---------------------------------------------------------------------------
\320\ See paragraph (a)(3) of Part F/S of proposed Form 1-CRYPTO
and paragraph (a)(3) of Part F/S of Form 1-A. Additionally, and
consistent with Regulation A, in certain less common circumstances,
such as in the case of an acquired business or an issuer or
guarantor of a guaranteed security, proposed Part F/S would require
Tier 1 issuers to consider the requirements of Regulation S-X. This
requirement would be applicable to circumstances in which the
financial statements of, or disclosures about, entities other than
the issuer would be required. Regulation S-X would be applicable in
these circumstances to issuers in Tier 2 offerings because, as
discussed above, they would be required to follow the financial
statement requirements of Article 8 of Regulation S-X as if the
issuer conducting the Tier 2 offering were a smaller reporting
company (unless otherwise noted). See proposed paragraph (b)(6) of
Part F/S of Form 1-CRYPTO.
---------------------------------------------------------------------------
As discussed in section II.C.2.a.ii above, the proposed fundraising
exemption is intended to be used by an entity. The reporting entity
concept establishes the boundaries of economic activities to be
included in the financial statements. Identifying the boundaries of
economic activities is necessary to faithfully present financial
information, and there can be practical complexities when those
boundaries are not clearly defined.\321\ As such, we believe that the
proposed fundraising exemption should be limited to entity-issuers.
---------------------------------------------------------------------------
\321\ See FASB Statement of Financial Accounting Concept No. 8,
Conceptual Framework for Financial Reporting (Dec. 2021).
---------------------------------------------------------------------------
Further, financial statements will be subject to assurance
requirements based on whether the offering statement relates to a Tier
1 offering or a Tier 2 offering.
With respect to Tier 1 offerings, issuers would not be
subject to a financial statement assurance requirement. Issuers in Tier
1 offerings that do not provide audited financial statements would be
required to label the financial statements as unaudited. Consistent
with the requirement in Regulation A,\322\ to the extent the issuer has
obtained an audit of its financial statements performed in accordance
with either U.S. GAAS or the standards of the PCAOB--by an auditor that
is independent under either the independence standards of the American
Institute of Certified Public Accountants (``AICPA'') or Rule 2-01 of
Regulation S-X--the issuer would be required to file those audited
financial statements as well as an audit opinion complying with 17 CFR
210.2-02 (``Rule 2-02'') of Regulation S-X.\323\
---------------------------------------------------------------------------
\322\ Paragraph (b)(2) of Part F/S of Part I-A; see 2015
Regulation A Release at n.445 (``[I]ssuers in Tier 1 offerings may
have independent business reasons why they seek to provide, or
investors that may otherwise demand, audited financial
statements.'').
\323\ Paragraph (b)(2) of Part F/S of proposed Form 1-CRYPTO.
---------------------------------------------------------------------------
With respect to Tier 2 offerings, the financial statements
included in the offering statement would be required to be audited in
accordance with either U.S. GAAS or the standards of the PCAOB--by an
auditor that is independent under the independence standards of Rule 2-
01 of Regulation S-X--and the report and qualifications of the
independent accountant would be required to comply with the
requirements of Article 2 of Regulation S-X.\324\
---------------------------------------------------------------------------
\324\ Paragraph (c)(1)(iii) of Part F/S of proposed Form 1-
CRYPTO.
---------------------------------------------------------------------------
We believe that the proposed assurance requirements would
appropriately balance the costs imposed on issuers against the investor
protection benefits derived from audited financial statements. We
believe the proposed assurance provisions, which are the same as the
assurance requirements in Regulation A, are consistent with issuer,
investor, and market expectations relating to the audit of financial
statements by an independent accountant in offerings involving the
amounts that may be raised under the proposed fundraising exemption. We
further believe that independent audit firms would be willing and able
to perform audits of covered investment contract issuers.\325\
---------------------------------------------------------------------------
\325\ Several audit firms provided input to the Crypto Task
Force. See letters from AICPA (Apr. 21, 2025); CAQ; Deloitte; EY;
PwC. Each of these commenters discussed developments in audit and
attestation practices regarding covered investment contracts and
made recommendations for future standard-setting or guidance.
---------------------------------------------------------------------------
We believe that the proposed approach to financial reporting under
the proposed fundraising exemption is appropriate and consistent with
investor protection, including because it would be consistent with the
approach in offerings under Regulation A. U.S. GAAP provides a
comprehensive basis for the preparation of general-purpose financial
statements, which is best suited to provide the information that
investors need to make decisions about providing resources to covered
investment contract issuers. Further, we believe that financial
statements prepared in accordance with U.S. GAAP provide the most
appropriate framework for reflecting the effects of an entity's
activities on its operating results, financial position, and capital
structure.
We acknowledge requests from commenters for additional clarity with
respect to accounting standards relating to crypto asset-related
transactions.\326\ The Financial Accounting Standards Board (``FASB'')
recently issued Accounting Standards Update (``ASU'') 2023-08 requiring
the subsequent measurement of certain crypto assets at fair value.\327\
Stakeholders provided feedback that because ASU 2023-08 does not
address the initial measurement, recognition, or derecognition of
crypto assets, the FASB should prioritize a project to address those
areas. The FASB included in its January 2025 Invitation to Comment,
Agenda Consultation a solicitation for additional feedback regarding
potential standard setting to address existing challenges in accounting
for crypto asset-related transactions. \328\ The FASB then added two
projects to its technical agenda to address the accounting for crypto
asset transfers \329\ and whether certain digital assets may be
classified as cash equivalents.
---------------------------------------------------------------------------
\326\ See supra section II.C.1; see also President's Working
Group Report at 147 (``observ[ing] that many questions on the
accounting for digital asset transactions relate to . . . key
concepts that FASB should consider for further consultation through
public engagement,'' including issues related to recognition and
derecognition and issuer accounting).
\327\ See FASB, Intangibles--Goodwill and Other--Crypto Assets
(Subtopic 350-60), Accounting Standards Update No. 2023-08 (Dec.
2023).
\328\ See Financial Accounting Standards Board Agenda
Consultation Invitation to Comment, File Ref. No. 2025-ITC100, (Jan.
3, 2025) 15. Question 24 of the Invitation to Comment asks: ``What
challenges, if any, are there in applying current recognition and
derecognition guidance to crypto asset transactions? Are there
specific transactions that are more challenging? If so, how
pervasive are those transactions and does the application of the
current guidance appropriately portray the economics of those
transactions (and if not, why)? Please explain, including whether
and how these challenges could be addressed through standard
setting.''
\329\ The project addresses the accounting for crypto asset
transfers that will include expanding the scope of the guidance
issued in ASU 2023-08 to address wrapped tokens and receipt tokens,
as well as clarifying the derecognition guidance for crypto transfer
arrangements to assess whether the control of a crypto asset has
been transferred.
---------------------------------------------------------------------------
We agree with commenters that the FASB is best positioned to
establish and
[[Page 54548]]
revise accounting standards relating to crypto assets.\330\ We also
agree with commenters that independent accountants are willing and able
to provide assurance on crypto asset issuers' financial statements
using existing auditing standards and guidance.\331\ We will continue
to engage with issuers, the public, and with the FASB, PCAOB, and AICPA
to help ensure that the relevant accounting and auditing standards and
best practices keep pace with emerging technology. Additionally, we
believe that the proposed period for which financial statements would
be required (two fiscal years or such shorter period as the issuer, or
the issuer and its predecessors or any businesses to which the issuer
is a successor has been in existence) is appropriate. This requirement
is consistent with the periods required in offerings under Regulation A
and Regulation Crowdfunding, and therefore consistent with the
expectations of issuers and investors.\332\ We considered proposing a
shorter period for the required financial statements, but we believe
two years is appropriate given that covered investment contract issuers
at various stages of development may utilize the exemption. While many
issuers who utilize the proposed fundraising exemption may be newly-
formed or otherwise developing subject crypto assets and associated
crypto networks or associated crypto applications that have not yet
been launched or are at an early stage (in which case the issuer would
need to provide financial information only for so long as it has been
in existence, if less than two years), Regulation Crypto Assets is not
limited to these types of issuers. We expect that issuers of covered
investment contracts related to more mature subject crypto assets and
associated crypto networks or associated crypto applications also may
utilize the proposed fundraising exemption.
---------------------------------------------------------------------------
\330\ See letters from Deloitte; EY; PwC.
\331\ See letters from Deloitte; EY; PwC (stating that ``the
principles-based nature of the PCAOB's auditing standards and
guidance have allowed auditors of public companies to adapt
traditional procedures to address crypto assets'' and observing that
additional ``guidance and clarification from the PCAOB would help
maintain consistency in application and execution as well as help
align regulatory and stakeholder expectations'').
\332\ See Part F/S of Form 1-A and Instruction 3 to paragraph
(t) of Rule 201.
---------------------------------------------------------------------------
As discussed more fully in section IV below, we believe that
alternatives to U.S. GAAP would not be appropriate, may not provide
investors with the information they need to make an informed investment
decision, and may not realize meaningful benefits relative to our
proposed approach. Nonetheless, we invite comment below on the proposed
financial statement and assurance requirements.
Request for Comment
104. Should we adopt the financial statement requirements in Part
F/S of Form 1-CRYPTO as proposed? Should we adopt different financial
statement requirements for Tier 1 offerings versus Tier 2 offerings?
What are the costs and benefits of the proposed financial statement
requirements?
105. Are there alternative financial information requirements that
we should consider? What are the costs and benefits of alternative
approaches compared to the proposed financial statement requirements?
106. Beyond FASB's current efforts, is there a need for additional
clarity on accounting for crypto assets and crypto asset-related
transactions?
107. Is there a need for additional standard-setting or guidance
from the PCAOB or AICPA with respect to auditing crypto assets and
related transactions?
108. Is it appropriate to allow the financial statements included
in the Tier 2 offering statement to be audited in accordance with U.S.
GAAS, or should we require audits to be conducted in accordance with
PCAOB standards?
109. Should the financial statement assurance requirements for Tier
1 and Tier 2 offerings mirror the assurance requirements that are
required under Regulation A, as proposed?
110. Should the financial statements of an issuer conducting a Tier
1 offering be required to be reviewed or audited by an independent
public accountant, and if so, at what level of assurance?
111. Under the proposed rule, when the issuer is required to obtain
an audit of its financial statements, should the audit be required to
be performed by an accounting firm that is registered with the PCAOB?
iv. Part III of Form 1-CRYPTO (Exhibits)
Part III of Form 1-CRYPTO would set forth exhibit requirements that
are similar to those in Part III of Form 1-A, but tailored to covered
investment contract offerings and issuers.\333\ The proposed
requirements would include filing with the offering statement an
Exhibit Index (Item 14) and the following exhibits: underwriting
agreement; charter and by-laws; instrument defining the rights of
securityholders (including any whitepaper or similar document published
by the issuer); subscription agreement; voting trust agreement;
material contracts; plan of acquisition, reorganization, arrangement,
liquidation, or succession; escrow agreements; consents; opinion
regarding legality; ``testing the waters'' materials; appointment of
agent for service of process; and any additional exhibits the issuer
may wish to file. The exhibit requirements are largely consistent with
those in Part III of Form 1-A. Certain exhibit requirements are
tailored to covered investment contract offerings and issuers. For
example, the legality opinion relating to the securities covered by the
offering statement would require counsel to opine that the securities,
when sold, will be binding obligations of the issuer, to reflect that
the securities offered and sold under this proposed fundraising
exemption are limited to covered investment contracts. Other exhibit
requirements are tailored to simplify the form and reduce issuers'
compliance costs. For example, the material contracts exhibit
requirement in Form 1-CRYPTO only requires the filing of a contract:
(a) not made in the ordinary course of business; (b) that is material
to the issuer; and (c) that either (i) is to be performed in whole or
in part at or after the filing of the offering statement or (ii) was
entered into not more than two years before such filing.\334\ Finally,
we have omitted certain exhibits required by Form 1-A relating to
appointment of agent for service of process \335\ and certain technical
reports \336\ as these exhibits are not applicable to offerings of
covered investment contracts under this proposed fundraising exemption.
---------------------------------------------------------------------------
\333\ Part III of Form 1-CRYPTO would consist of attachments,
containing the signatures, exhibits index, and the exhibits to the
offering statement, formatted in HTML to be compatible with the
EDGAR filing system.
\334\ By contrast, the ``Material contracts'' requirement in
Item 17 of Form 1-A contains this general principal as well as
additional provisions that, among other things, specify certain
types of contracts that must be filed (notwithstanding the fact that
the contract would otherwise not have to be filed under the general
principal) and require that certain management contracts and
compensatory plans, contracts, and arrangements are deemed material
and must be filed.
\335\ See exhibit 14 in Part III of Form 1-A. This exhibit is
required for Canadian issuers.
\336\ See exhibit 15 in Part III of Form 1-A. This exhibit is
required for technical reports under subpart 1300 of Regulation S-K,
which applies to registrants engaged in mining operations.
---------------------------------------------------------------------------
Request for Comment
112. Item 15 to Form 1-CRYPTO requires an opinion of counsel as to
the legality of the securities covered by the offering statement and
specifies that the opinion should indicate whether the securities will
be binding obligations of the issuer. Are there additional instructions
or modifications to the
[[Page 54549]]
substance of the required opinion(s) that we should make?
113. Item 15 to Form 1-CRYPTO takes a principles-based approach to
the requirement of filing material contracts. Should we provide
examples of contracts that are deemed material or otherwise revise this
item to more closely align with the requirement in Item 17 of Form 1-A?
v. Rules 301, 306, and 307
Rules 301, 306, and 307 would set forth some of the filing,
amendment, qualification, and other mechanics with respect to Form 1-
CRYPTO. Rule 301 would set forth the following general requirements
applicable to offering statements and amendments, each of which are
substantially similar to analogous provisions in 17 CFR 230.252 under
Regulation A:
Content, filing fees, and signatures: Under Rule 301(a),
the offering statement would consist of the information required by
Form 1-CRYPTO and any other material information necessary to make the
required statements, in light of the circumstances in which they are
made, not misleading. Rule 301(b) would provide that no fee is payable
to the Commission upon either the submission or filing of an offering
statement on Form 1-CRYPTO, or any amendment to an offering statement.
Rule 301(c) would set forth who must sign the offering statement, in
what capacity, and requirements with respect to signatures by a person
on behalf of another person.
Non-public submission: Rule 301(d) would permit issuers to
submit draft offering statements to the Commission for non-public
review by the Commission's staff before public filing of the offering
statement.\337\ All non-public submissions under the proposed rule
would be required to be publicly filed on EDGAR not less than 15
calendar days prior to qualification of the offering statement. We note
that in 2015 the Commission adopted a similar provision under
Regulation A but required non-public submissions to be publicly filed
on EDGAR not less than 21 calendar days prior to qualification of the
offering statement.\338\ At that time, section 6(e) of the Securities
Act,\339\ added by Title 1 of the JOBS Act, required non-public
submissions made under that section to be publicly filed not later than
21 calendar days before the issuer conducts a roadshow. Section 6(e)
was subsequently amended by the FAST Act and currently requires non-
public submissions to be publicly filed not later than 15 days before
the issuer conducts a road show. Our proposed rule, therefore, would be
consistent with section 6(e) in this regard.
---------------------------------------------------------------------------
\337\ The corresponding provision in Regulation A limits non-
public submission to issuers whose securities have not been
previously sold pursuant to a qualified offering statement under
Regulation A or an effective registration statement under the
Securities Act. See 17 CFR 230.252(d). We are not proposing to
include a similar limitation in the fundraising exemption in order
to further reduce barriers to entry and support capital formation.
This is consistent with recent action taken by the staff of the
Division of Corporation Finance, which expanded the availability of
the nonpublic review process by permitting issuers to submit draft
registration statements regardless of how much time has elapsed
since becoming subject to the reporting requirements of section
13(a) or 15(d) of the Exchange Act. See U.S. Securities and Exchange
Commission, Division of Corporation Finance, Enhanced Accommodations
for Issuers Submitting Draft Registration Statements (Mar. 3, 2025),
available at https://sec.gov/about/divisions-offices/division-corporation-finance/draft-registration-statement-processing-procedures-expanded.
\338\ See 2015 Regulation A Release at section II.C.2.c.
\339\ 15 U.S.C. 77f(e).
---------------------------------------------------------------------------
Qualification, withdrawal, and abandonment: We are
proposing offering statement qualification, withdrawal, and abandonment
procedures that are substantially similar to those applicable to
Regulation A offering statements. Consistent with 17 CFR 230.252(e)
under Regulation A, Commission action would be required to qualify the
offering statement under the fundraising exemption. Specifically, Rule
301(e) would permit the offering statement to be qualified by
disseminating a notice of qualification, issued by the Division of
Corporation Finance pursuant to delegated authority.\340\ In addition,
consistent with 17 CFR 230.259(a) of Regulation A, Rule 307(a) would
permit an issuer to withdraw an offering statement, with the
Commission's consent, if none of the securities that are the subject of
the offering statement have been sold and the offering statement is not
the subject of a Commission order temporarily suspending a Regulation
Crypto Assets exemption. Finally, consistent with 17 CFR 230.259(b) of
Regulation A, Rule 307(b) would permit the Commission to declare an
offering statement abandoned if the offering statement has been on file
with the Commission for more than nine months without amendment and has
not become qualified.
---------------------------------------------------------------------------
\340\ A notice of qualification is analogous to a notice of
effectiveness in registered offerings. See 17 CFR 200.30-1(a)(5)
(providing the Director of the Division of Corporation Finance with
the delegated authority to declare registration statements to be
effective within shorter periods of time than 20 days after filing,
consistent with section 8(a) of the Securities Act); 17 CFR 200.30-
1(b) (providing the Director of the Division of Corporation Finance
with the delegated authority to determine the date and time of
qualification for offering statements and amendments to offering
statements filed pursuant to Regulation A). We are also proposing a
conforming amendment to the Commission's organizational rules, by
adding 17 CFR 200.30-1(n), to delegate authority to the staff to
qualify offering statements under the proposed fundraising
exemption. Relatedly, we are also proposing an amendment to the
Commission's Rules of Practice, 17 CFR 201.431, that would add 17
CFR 200.30-1(n)(2) to the list of actions for which there is no
automatic stay of the delegated action when the Commission reviews
that action. See 17 CFR 201.431(e)(3). This amendment is intended to
conform to the Commission's recent change of its rule of practice in
this area. See Amendments to the Commission's Rules of Practice,
Release No. 34-103980 (Sept. 17, 2025) [90 FR 45123 (Sept. 19,
2025)].
---------------------------------------------------------------------------
Amendments: Rule 301(f) would set forth form and content
rules for amendments to the offering statement that are substantially
similar to 17 CFR 230.252(f).
Post-qualification amendments: We are proposing
requirements for post-qualification amendments to the offering
statement that are substantially similar to those in 17 CFR
230.252(f)(2) of Regulation A. Rule 301(f)(2)(i) would require a post-
qualification amendment for ongoing offerings at least every 12 months
after the qualification date to include the financial statements that
would be required by Form 1-CRYPTO as of such date. Rule 301(f)(2)(ii)
would require a post-qualification amendment for ongoing offerings to
reflect any facts or events arising after the qualification date of the
offering statement (or the most recent post-qualification amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the offering
statement. Consistent with Regulation A, an issuer may qualify the
offering of additional covered investment contracts by filing a post-
qualification amendment to the qualified offering statement.\341\
---------------------------------------------------------------------------
\341\ Proposed 17 CFR 228.300(d)(3)(i)(F); Proposed 17 CFR
228.302, note to paragraph (b).
---------------------------------------------------------------------------
Suspension of the exemption: Rule 306 would provide that
the Commission may issue an order suspending the availability of the
fundraising exemption in certain specified circumstances, modeled on an
analogous provision 17 CFR 230.258 in Regulation A.
Request for Comment
114. Should we adopt the proposed period for filing non-public
submissions?
115. Should we permit non-public submission from issuers whose
securities have been previously sold pursuant to a qualified offering
statement under the proposed exemption?
[[Page 54550]]
c. Offering Circular (Rules 302 and 303)
Rules 302 and 303 would set forth requirements for the use of
offering circulars that are substantially similar to the offering
circular requirements in 17 CFR 230.253 and 254 of Regulation A.\342\
The proposed rules would include general requirements for use of
offering circulars, requirements for preliminary offering circulars,
and requirements for offering circular supplements, summarized as
follows:
---------------------------------------------------------------------------
\342\ As discussed in the 2015 Regulation A Release, the
offering circular requirements for Regulation A offerings were
modeled on analogous requirements for the use of prospectus
supplements in registered offerings. See 2015 Regulation A Release
at section II.C.4; see also 17 CFR 230.424(b) and 230.430B.
---------------------------------------------------------------------------
General requirements: Under Rule 302(a), an offering
circular used pursuant to the fundraising exemption would be required
to include the information required by proposed Form 1-CRYPTO. Rule
302(b) would provide that a qualified offering circular may omit
information with respect to the public offering price, certain
information relating to the underwriting arrangements, and certain
terms dependent on the offering price, offering date, or delivery
dates. The omission of certain information from the qualified offering
circular is subject to the same conditions in the analogous provisions
in 17 CFR 230.253 of Regulation A and, for registered offerings, 17 CFR
230.430B under the Securities Act. Consistent with Regulation A and
similar to registered offerings, Rule 302(c) would provide that
information omitted in reliance on proposed Rule 302(b) would be
required to be contained (i) in an offering circular supplement filed
within 15 business days of the date the offering statement is qualified
(or 15 business days of the date a post-qualification amendment that
contains an offering circular is qualified) or (ii) a qualified post-
qualification amendment. In addition, Rule 302(d) and (e) would include
provisions for the date the offering circular was filed with the
Commission and the required cover page legend, respectively. As with
offering statements and other materials, all offering circulars would
be subject to electronic filing and delivery requirements that are
substantially similar to analogous requirements in Regulation A.
Preliminary offering circulars: Rule 303 would set forth
requirements for preliminary offering circulars that are substantially
similar to those for preliminary offering circulars under 17 CFR
230.254 of Regulation A. Under Rule 303(a), the preliminary offering
circular would be required to be appropriately captioned, include the
date of issuance, and include a prominent legend. Rule 303(b) would
require the preliminary offering circular to contain substantially the
information required to be in an offering circular by Form 1-CRYPTO
except information that may be omitted under proposed Rule 302(b). Rule
303(c) would require the preliminary offering circular to be filed as
part of the offering statement.
Offering circular supplements: Rule 302(f) would set forth
requirements for the use of offering circular supplements that are
substantially similar to the requirements in 17 CFR 230.253(g) of
Regulation A and consistent with analogous requirements in 17 CFR
230.424(b) for prospectus supplements used in registered offerings.
Under Rule 302(f), an issuer would be required to file an offering
circular supplement to reflect information previously omitted from the
offering circular in reliance on proposed Rule 302(b) no later than two
business days following the earlier of the date of the determination of
the offering price or the date of first use of the offering circular in
a public offering or sale following qualification. Further, to the
extent an offering circular reflects information that constitutes a
substantive change from or addition to information included in the last
offering circular filed with the Commission, an issuer must file an
offering circular supplement reflecting this substantive change no
later than five business days following the date it is first used after
qualification in connection with a public offering or sale. Rule 302(f)
also contains provisions relating to offering circular supplements,
including a requirement with respect to offering circulars not timely
filed.
d. ``Testing the Waters'' Communications (Rule 304)
Rule 304 would permit non-binding solicitations of interest and
similar pre-qualification ``testing the waters'' offering
communications subject to specified conditions, substantially similar
to the non-binding solicitations of interest permitted in 17 CFR
230.255 of Regulation A offerings.
Under proposed Rule 304(a), at any time before qualification of the
offering statement, including before any non-public submission or
public filing of the offering statement, an issuer or any person
authorized to act on behalf of the issuer may communicate orally or in
writing to determine whether there is any interest in the contemplated
offering under the fundraising exemption. Written communications under
this rule may include a means by which a person may indicate to the
issuer that the person is interested in the potential offering.\343\
Consistent with other proposed provisions in Regulation Crypto Assets,
communications under this proposed rule would be deemed to be an offer
of a security for sale for purposes of the antifraud provisions of the
Federal securities laws.\344\
---------------------------------------------------------------------------
\343\ See proposed 17 CFR 228.304(c).
\344\ See proposed 17 CFR 228.304(a).
---------------------------------------------------------------------------
Similar to the testing the waters provision in Regulation A, no
solicitation or acceptance of money or other consideration, nor of any
commitment, binding or otherwise, from any person would be permitted
until the offering statement is qualified.\345\ Communications under
this proposed rule would be subject to the conditions detailed in
proposed Rule 304(b). The proposed rule also provides for the
redistribution of revised solicitation of interest materials in the
event solicitation of interest materials used after the public filing
of the offering statement and before its qualification contain
information that is inaccurate or inadequate in any material
respect.\346\ Finally, written communications or broadcast scripts used
in testing the waters communications under this proposed rule must be
filed as an exhibit to the Form 1-CRYPTO offering statement.\347\
---------------------------------------------------------------------------
\345\ See id.
\346\ See proposed 17 CFR 228.304(d).
\347\ See proposed exhibit number 13 to Item 15 of Part III to
Form 1-CRYPTO. The instruction for the ``testing the waters''
exhibit in the proposed Form 1-CRYPTO is substantially similar to
the instruction in Form 1-A, which also requires filing of any
written communication or broadcast script used under the generic
solicitations of interest rule, 17 CFR 230.241. See 2015 Regulation
A Release at section II.B.2.iii.
---------------------------------------------------------------------------
e. Ongoing Reporting (Rule 305(a), (b), and (c))
Under Rule 305(a), issuers that have qualified Tier 1 or Tier 2
offerings under the fundraising exemption would be subject to ongoing
periodic reporting requirements. Issuers subject to ongoing reporting
would be required to file semiannual, annual, and current reports on
proposed new Form 1-SC (with a description codified at 17 CFR 239.602),
Form 1-KC (with a description codified at 17 CFR 239.601), and Form 1-
UC (with a description codified at 17 CFR 239.603), respectively, which
are attached hereto as Appendix C, Appendix B, and Appendix D,
respectively. Each of those forms would be modeled on the analogous
Regulation A ongoing reporting forms and tailored
[[Page 54551]]
to covered investment contract offerings and issuers.\348\
---------------------------------------------------------------------------
\348\ Rule 305(b) would set forth requirements for amendments to
the required reports that are substantially similar to the
requirements under the analogous provision in 17 CFR 230.257(c) of
Regulation A. Rule 305(a)(5), (6), and (7) also would set forth
provisions applicable to successor issuers, Exchange Act reporting
requirements, and subsidiary issuers of guaranteed securities and
subsidiary guarantors that would substantially mirror the analogous
provisions in 17 CFR 230.257(b)(5), (6), and (7) of Regulation A.
---------------------------------------------------------------------------
Rule 305(a)(1) would require each issuer that has qualified an
offering statement under the fundraising exemption to file with the
Commission an annual report on Form 1-KC for the fiscal year in which
the offering statement became qualified and for any fiscal year
thereafter, unless the issuer's obligation to file such annual report
is suspended under Rule 305(c) or is terminated under Rule 305(d).\349\
Annual reports would be required to be filed within 120 calendar days
after the end of the fiscal year covered by the report. Annual reports
would include non-financial disclosure items corresponding to the
disclosure requirements in Rule 103(b) (other than Rule 103(b)(2),
which requires a description of the material terms of an offering).
Annual reports also would require the issuer to provide a Discussion of
Financial Condition (which would require the issuer to include the
disclosure required by Item 13 of Form 1-CRYPTO) and would require
disclosure of any information required to be disclosed, but not
reported, in a report on proposed Form 1-UC during the last six months
of the fiscal year covered by the annual report.
---------------------------------------------------------------------------
\349\ Form 1-KC would be required to be formatted in HTML, as
would be further provided in the EDGAR Filer Manual, to be
compatible with EDGAR.
---------------------------------------------------------------------------
Rule 305(a)(3) would require each issuer that has qualified an
offering statement under the fundraising exemption to file with the
Commission a semiannual report on Form 1-SC within 90 calendar days
after the end of the semiannual period covered by the report.
Semiannual reports would be required to cover the first six months of
each fiscal year of the issuer, commencing with the first six months of
the fiscal year immediately following the most recent fiscal year for
which financial statements were included in the offering statement, or,
if the offering statement included financial statements for the first
six months of the fiscal year following the most recent full fiscal
year, for the first six months of the following fiscal year.\350\
Semiannual reports would include the following non-financial disclosure
items: Item 1 (Covered Investment Contract), which would include the
information required by proposed Rule 103(b)(1); Item 2 (Associated
Crypto Network/Application; Plan of Development), which would include
the information required by proposed Rule 103(b)(5); Item 3 (Discussion
of Financial Condition), which would include the information required
by the related item of Form 1-CRYPTO for the interim period for which
financial statements are required; and Item 4 (Other Information),
which would include any information required to be disclosed, but not
reported, in a report on proposed Form 1-UC during the last six months
of the fiscal year covered by the semiannual report (whether or not
otherwise required by Form 1-SC).
---------------------------------------------------------------------------
\350\ Form 1-SC would be required to be formatted in HTML, as
would be further provided in the EDGAR Filer Manual, to be
compatible with EDGAR.
---------------------------------------------------------------------------
The financial statements requirements for semiannual reports on
Form 1-SC and annual reports on Form 1-KC would be the same as provided
in the qualified offering statement. The assurance requirements in
semiannual and annual reports would be modeled on Regulation A ongoing
reporting: the financial statements in a semiannual report would not be
subject to any assurance requirement; and the financial statements in
an annual report filed by issuers who qualified a Tier 2 offering would
be subject to the same assurance requirement as in the qualified
offering statement, as discussed in section II.C.2.b.iii above. The
financial statements in an annual report filed by issuers who qualified
a Tier 1 offering need not be audited; however, as discussed in section
II.C.2.b.iii above for Tier 1 offering statements, if an audit of these
financial statements is obtained for other purposes and that audit was
performed in accordance with either U.S. GAAS or the standards of the
PCAOB--by an auditor that is independent under either the independence
standards of the AICPA or Rule 2-01 of Regulation S-X--the issuer would
be required to file those audited financial statements as well as an
audit opinion complying with Rule 2-02 of Regulation S-X along with
those audited financial statements. Rule 305(a)(4) would require each
issuer that has qualified an offering statement under the fundraising
exemption to file with the Commission current reports on Form 1-UC with
respect to the matters specified in the form, within four business days
after the occurrence of one of the specified events, unless
substantially the same information has been previously reported to the
Commission by the issuer under cover of Form 1-KC or Form 1-SC.\351\
---------------------------------------------------------------------------
\351\ Form 1-UC would be required to be formatted in HTML, as
would be further provided in the EDGAR Filer Manual, to be
compatible with EDGAR.
---------------------------------------------------------------------------
Rule 305(a)(2) would require each issuer that has qualified an
offering statement under the fundraising exemption to file with the
Commission a special financial report on Form 1-KC or Form 1-SC if the
offering statement did not contain the following: (A) financial
statements (which are required to be audited for Tier 2 offerings) for
the issuer's most recent fiscal year (or for the life of the issuer or
the issuer and its predecessors or any businesses to which the issuer
is a successor if less than a full fiscal year) preceding the fiscal
year in which the issuer's offering statement became qualified; or (B)
unaudited financial statements covering the first six months of the
issuer's current fiscal year if the offering statement was qualified
during the last six months of that fiscal year. With respect to special
financial reports filed on Form 1-KC, they would be required to be
filed within 120 calendar days after the qualification date of the
offering statement and must include audited financial statements for
such fiscal year or other period specified in that paragraph, as the
case may be. With respect to special financial reports filed on Form 1-
SC, they would be required to be filed within 90 calendar days after
the qualification date of the offering statement and must include the
semiannual financial statements for the first six months of the
issuer's fiscal year, which may be unaudited. Those special financial
reports also would be required to be signed in accordance with the
requirements of the form on which it is filed.
Unlike Regulation A, issuers who have qualified Tier 1 offerings
under the proposed fundraising exemption would be subject to ongoing
reporting requirements. We believe that requiring ongoing and current
reporting for all issuers under the proposed fundraising exemption is
appropriate given that the issuer's ongoing efforts to develop its
associated crypto network or associated crypto application are directly
relevant to the value of the covered investment contract and the
subject crypto asset. Further, and unlike the rationale for excepting
Tier 1 issuers under Regulation A from ongoing reporting, we do not
anticipate that Tier 1 issuers using the proposed rule will be
conducting offerings that are ``more local in nature'' than Tier 2
offerings
[[Page 54552]]
and we do anticipate that there may be secondary markets for the
securities issued in Tier 1 offerings.\352\
---------------------------------------------------------------------------
\352\ See 2015 Regulation A Release at section II.E.
---------------------------------------------------------------------------
We do not believe that requiring ongoing reporting for all issuers
would impose undue costs on issuers in smaller, Tier 1 offerings. These
issuers would benefit from tailored disclosure requirements, would not
be subject to greater financial statement or assurance requirements
than in their qualified offering statements,\353\ and the scope of
disclosure to be updated would not be greater than that required to be
updated by issuers relying on the startup exemption. If an issuer is or
becomes subject to the reporting requirements of section 13 or 15(d) of
the Exchange Act, its duty to file reports under the proposed rule will
be deemed to have been met if, as of each Form 1-KC and Form 1-SC due
date, the issuer has filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the 12 months (or such shorter
period that the registrant was required to file such reports) preceding
such due date.
---------------------------------------------------------------------------
\353\ As discussed above, if an audit of a Tier 1 issuer's
financial statements is obtained for other purposes and that audit
was performed in accordance with either U.S. GAAS or the standards
of the PCAOB--by an auditor that is independent under either the
independence standards of AICPA or Rule 2-01 of Regulation S-X--the
issuer would be required to file those audited financial statements
as well as an audit opinion complying with Rule 2-02 of Regulation
S-X along with those audited financial statements.
---------------------------------------------------------------------------
Commenters supported varying degrees of ongoing periodic disclosure
focusing on material changes in the development of the subject crypto
asset and the associated crypto network or associated crypto
application.\354\ One commenter stated that ``[o]ne-time disclosures at
launch are insufficient to protect investors in dynamic, evolving token
ecosystems.'' \355\ Other commenters observed that the importance of
ongoing periodic disclosure decreases as control of an associated
crypto network or associated crypto application becomes dispersed.\356\
In these cases, in the view of some commenters, material information
likely would consist of progress toward development milestones or other
material changes during the time the issuer retains control over the
subject crypto asset or the associated crypto network or associated
crypto application.\357\
---------------------------------------------------------------------------
\354\ See, e.g., letters from GDCA (``We strongly suggest
requiring disclosure at both the time of sale and on an ongoing
basis.''); L. Cohen; Coinbase.
\355\ Letter from GDCA.
\356\ See, e.g., letter from L. Cohen (``A project team that has
completed a fundraising transaction involving crypto assets
associated with a blockchain system they are developing might remain
subject to certain scaled disclosure obligations so long as the
team's ongoing efforts remain material to the growth and development
of the blockchain system (and, hence, the value of the associated
crypto asset).''); see also letter from Coinbase (``To the extent
that ongoing disclosure is required, it should be limited to
material changes in the token and associated network and, to the
extent that the token and/or associated network was not yet
operational or was still in development at the time of any
securities transactions pursuant to these rules, any material
developments related to the issuer's ability to complete its
initially disclosed development efforts.'').
\357\ See letter from Coinbase; see also letter from GDCA
(noting that as the network or application decentralizes, financial
and other information may be publicly available timelier than the
information is made available in periodic reports).
---------------------------------------------------------------------------
We believe that ongoing public disclosures serve an important
investor protection function in offerings involving covered investment
contracts. An issuer's ongoing reporting obligations will, however,
terminate once the covered investment contract has ceased to exist,
including if the issuer has qualified for the investment contract safe
harbor. Rule 305(d), discussed in section II.C.2.f below, would address
these circumstances.
Request for Comment
116. As noted previously in this section, each form for the
proposed fundraising exemption is attached hereto as Appendices A
through D. The forms generally track corresponding Regulation A forms
with changes intended to reflect the circumstances of covered
investment contract offerings and their issuers. Should we further
tailor the forms to better reflect such circumstances? To illustrate,
as proposed, many of the events triggering disclosure in Form 1-UC
relate to matters involving the issuer rather than focusing on the
associated crypto network or associated crypto application. For
example, under Item 6 of Form 1-UC, disclosure is required upon certain
changes in control of the issuer. Should we revise Form 1-UC such that
the triggering events are more focused on the associated crypto network
or associated crypto application rather than the issuer by, for
example, requiring disclosure upon certain changes in control of the
associated crypto network or associated crypto application?
117. As proposed, periodic and current reporting would be required
for both Tier 1 and Tier 2 issuers that have qualified an offering
statement under Regulation Crypto Assets. Should we require such
reporting for issuers that have conducted only a Tier 1 offering?
Alternatively, similar to Regulation A, should we require ongoing
reporting only for issuers conducting Tier 2 offerings?
118. Form 1-SC would require the issuer to furnish the information
required by proposed Rule 103(b)(1) and (b)(5). Among other things,
those rules would require the issuer to provide disclosure regarding
its progress with respect to its representations or promises to engage
in essential managerial efforts under the covered investment contract
and its progress with respect to its plan of development. Should we
include the proposed financial statements requirements for semiannual
reports on Form 1-SC, or should that form's disclosure requirements
focus on the issuer's progress with respect to such representations or
promises and its plan of development? If we do not adopt the proposed
financial statement requirements for that form, should those financial
statements be disclosed in some other manner? If not, would the lack of
semiannual financial statements result in material risks to investors?
119. As noted in section II.C.2.b.v above, proposed Rule 301(f)(2)
would require post-qualification amendments for ongoing offerings in
certain circumstances. To the extent an issuer files a post-
qualification amendment before the issuer's Form 1-KC is due, and such
post-qualification amendment contains the information (including the
financial statements) that the issuer would be required to provide on
the Form 1-KC, should the issuer not be required to also file the Form
1-KC? That is, in those circumstances, would filing a Form 1-KC provide
investors with any benefits, or would it simply be duplicative of the
information provided in the post-qualification amendment?
120. Should the proposed fundraising exemption, consistent with
Regulation A, permit an issuer to register a class of securities sold
in a Tier 2 offering under the Exchange Act by filing a Form 8-A in
conjunction with the qualification of a Form 1-CRYPTO?
121. Are there certain types of organizational structures that
cannot satisfy the disclosure requirement in Form 1-KC, Form 1-SC, and
Form 1-UC to provide a jurisdiction of incorporation or formation (if
the issuer is or includes an entity)? For example, could decentralized
unincorporated nonprofit associations satisfy this requirement? If not,
should we revise this requirement to accommodate any such
organizational structures?
122. Should we require disclosure of the address of the issuer's
principal executive office only if the issuer has a principal executive
office, as proposed in Form 1-KC, Form 1-SC, and Form 1-
[[Page 54553]]
UC? If an issuer does not have a principal executive office, should we
require the issuer to provide a different address (for example, the
address for the issuer's agent for service of process)?
f. Transition Reporting (Rule 305(c) and (d))
Rule 305(c) and (d) would set forth transition reporting provisions
that would apply equally to issuers in Tier 1 and Tier 2 offerings and
set forth pathways to suspend or terminate ongoing reporting
obligations under the proposed fundraising exemption.
Rule 305(c) and (d)(1) would substantially mirror the suspension
and termination of duty to file reports that are in 17 CFR 230.257(d)
and (e)(1) of Regulation A. Under Rule 305(c)(1), the duty to file
reports under Rule 305(a) with respect to a class of securities held of
record (which, for purposes of determining whether securities are
``held of record'' under the proposed rule, will be as defined in 17
CFR 240.12g5-1) by less than 300 persons would be suspended for such
class of securities immediately upon filing with the Commission a
transition report on Form TR if the issuer of such class has filed all
reports required to be filed under Rule 305 before the date of such
Form TR filing for the shorter of: (i) the period since the issuer
became subject to such reporting obligation; or (ii) its most recent
three fiscal years and the portion of the current year preceding the
date of filing Form TR. Rule 305(c)(2) would provide that the term
``class'' is construed to include all securities of an issuer that are
of substantially similar character and the holders of which enjoy
substantially similar rights and privileges. The rule further would
provide that if the Form TR is subsequently withdrawn or if it is
denied because the issuer was ineligible to use the form, the issuer
must, within 60 calendar days, file with the Commission all reports
which would have been required if such transition report had not been
filed. If the suspension resulted from the issuer's merger into, or
consolidation with, another issuer or issuers, the notice must be filed
by the successor issuer.
Further, under Rule 305(c)(3), the ability to suspend reporting
under Rule 305(c)(1) would not be available if: (i) during that fiscal
year the issuer has an offering statement that was qualified; (ii) the
issuer has not filed an annual report under Rule 305 or the Exchange
Act for the fiscal year in which an offering statement was qualified;
or (iii) offers or sales of securities of that class are being made
pursuant to an offering under the fundraising exemption.
Rule 305(d)(1) would provide that if the duty to file reports is
deemed to have been met under Rule 305(a)(6) (i.e., because the issuer
is subject to Exchange Act reporting requirements and is current with
respect to those requirements) and such status ends because the issuer
terminates or suspends its duty to file reports under the Exchange Act,
the issuer's obligation to file reports under Rule 305(a) will: (i)
automatically terminate if the issuer is eligible to suspend its duty
to file reports under Rule 305(c)(1) and (3); or (ii) recommence with
the report covering the most recent financial period after that
included in any effective registration statement or filed Exchange Act
report.
Rule 305(d)(2) sets forth separate bases on which an issuer may
terminate its ongoing reporting obligations. These bases reflect the
unique nature of covered investment contracts. Under Rule 305(d)(2), if
an issuer satisfies the conditions of the investment contract safe
harbor \358\ or the covered investment contract otherwise ceases to
exist during the period in which the issuer is required to file reports
under Rule 305(a), the issuer's obligation to file reports under Rule
305(a) will terminate immediately upon filing with the Commission a
transition report on Form TR.\359\
---------------------------------------------------------------------------
\358\ See infra section II.D.
\359\ See 2026 Interpretation at 13723; see also supra section
I.A.2.b.
---------------------------------------------------------------------------
As discussed previously in this section, issuers would use proposed
Form TR for any transition report filed under Regulation Crypto Assets,
checking the box to indicate the specific provision under which the
issuer is filing the report. If the issuer is filing the Form TR to
suspend its ongoing reporting obligations pursuant to Rule 305(c), Form
TR would require similar information as would be required in an exit
report on Form 1-Z under Regulation A. If the issuer is filing the Form
TR to terminate its ongoing reporting obligations under Rule 305(d)(2),
then Form TR would require the same information as would be required in
a transition report under the startup exemption.\360\ The issuer's
ongoing reporting obligations would terminate in the two scenarios
discussed in Rule 305(d)(2) because there would no longer be a covered
investment contract.
---------------------------------------------------------------------------
\360\ See supra section II.B.2.e.
---------------------------------------------------------------------------
Request for Comment
123. Should we adopt the provisions for suspension and termination
of ongoing reporting as proposed? Is 300 record holders an appropriate
threshold in the context of covered investment contracts? Should we
define ``held of record'' by reference to 17 CFR 240.12g5-1 as
proposed?
D. Investment Contract Safe Harbor (Subpart D, Rule 400)
Subpart D of Regulation Crypto Assets would set forth a non-
exclusive safe harbor from the term ``investment contract'' in the
definitions of ``security'' in section 2(a)(1) of the Securities Act
\361\ and section 3(a)(10) of the Exchange Act.\362\ As proposed, if
the conditions of the safe harbor are satisfied, then a covered
investment contract will be deemed by the Commission to have ceased to
exist, and the crypto asset that was subject to the covered investment
contract will be deemed by the Commission not to be subject to such
investment contract for purposes of those statutory definitions of
``security.'' This safe harbor is intended to provide market
participants with greater clarity as to when a covered investment
contract has ceased to exist because of a lack of essential managerial
efforts and, therefore, the crypto asset is no longer a ``subject
crypto asset.''
---------------------------------------------------------------------------
\361\ 15 U.S.C. 77b(a)(1).
\362\ 15 U.S.C. 78c(a)(10).
---------------------------------------------------------------------------
1. Background
As discussed throughout this release, many covered investment
contracts eventually will cease to exist. In addition, as noted in
section I.B.1 above, the Howey test can be complex and difficult to
apply to crypto assets. As such, issuers understandably may be
concerned that the Commission may second-guess their determinations as
to whether a crypto asset is subject to an investment contract under
the Howey test. We recognize that this uncertainty could complicate an
issuer's transaction planning which, in turn, may impede capital
formation and innovation in the crypto asset markets. Several
commenters, echoing this concern, expressed a desire for greater
clarity as to when a crypto asset is subject to an investment
contract.\363\
---------------------------------------------------------------------------
\363\ See supra section I.B.1 and 2.
---------------------------------------------------------------------------
The Commission recently took steps to increase clarity on this
point by issuing the 2026 Interpretation which, among other things,
provided the Commission's view that a covered investment contract
separates from the subject crypto asset and ceases to exist when
either: (1) the issuer has fulfilled its representations or promises to
engage in essential managerial efforts under the covered investment
contract, or (2) the purchaser would not reasonably expect
[[Page 54554]]
the issuer to be able to fulfill or to continue to engage in the
essential managerial efforts it represented or promised it would
undertake.\364\ Proposed Rule 400 would codify this portion of the 2026
Interpretation in a safe harbor and provide a mechanism whereby the
issuer can notify the Commission and the public that it has determined
that the covered investment contract has ceased to exist and explain
the basis on which it has made that determination. The proposed safe
harbor may provide issuers, investors, and other market participants
with greater certainty as to when a crypto asset is no longer subject
to an investment contract. Any resulting increased predictability and
certainty may reduce transaction costs and facilitate better
transaction planning while also protecting investors.
---------------------------------------------------------------------------
\364\ See 2026 Interpretation at 13722-23.
---------------------------------------------------------------------------
2. Proposed Rules
The investment contract safe harbor would be set forth in proposed
Rule 400. Rule 400 would provide that a covered investment contract
will be deemed to have ceased to exist, and the crypto asset that was
subject to the covered investment contract will be deemed not to
constitute or represent or to be subject to that investment contract
for purposes of section 2(a)(1) of the Securities Act and section
3(a)(10) of the Exchange Act, if the conditions set forth in Rule
400(a) and (b) are satisfied.
Rule 400(a) would require that the issuer of the covered investment
contract has completed or otherwise permanently ceased all essential
managerial efforts that it represented or promised it would engage in
under the covered investment contract and is not making and does not
intend to make any new representations or promises to engage in
essential managerial efforts with respect to the crypto asset.\365\
These conditions are intended to codify the Commission's views
expressed in the 2026 Interpretation regarding some of the
circumstances under which a covered investment contract ceases to
exist.\366\
---------------------------------------------------------------------------
\365\ See supra section II.A.4.b.i for a discussion of the types
of efforts that may be regarded as essential managerial efforts as
well as those that would not constitute essential managerial
efforts.
\366\ As noted above, the 2026 Interpretation provided the
Commission's view that a covered investment contract separates from
the subject crypto asset and ceases to exist when either: (1) the
issuer has fulfilled its representations or promises to engage in
essential managerial efforts under the covered investment contract,
or (2) the purchaser would not reasonably expect the issuer to
fulfill or to continue to engage in the essential managerial efforts
it represented or promised it would undertake. See 2026
Interpretation at 13722-23.
---------------------------------------------------------------------------
Rule 400(b) would require the issuer of the covered investment
contract to file a transition report containing the information
required by Form TR with the Commission (which would be required to be
filed on EDGAR, pursuant to Rule 101(c) \367\). Form TR would set forth
the information that the issuer would have to provide to perfect their
reliance on the investment contract safe harbor. Form TR would require
the issuer to provide the following information:
---------------------------------------------------------------------------
\367\ See supra section II.A.2 for a discussion of proposed Rule
101(c).
---------------------------------------------------------------------------
Information regarding the issuer, including the issuer's
name (or names, if the issuer is a group of individuals and/or
entities), jurisdiction of incorporation or formation (if the issuer is
or includes an entity), address of principal executive offices (if
any), telephone number, and email address; \368\
---------------------------------------------------------------------------
\368\ To the extent that the issuer is composed of a group of
individuals and/or entities, the issuer would be required to
designate a single telephone number and email address for purposes
of the Form TR.
---------------------------------------------------------------------------
A brief description of the covered investment contract and
crypto asset sufficient for a reasonable investor to identify the
security and crypto asset to which the filing relates;
A certification that the issuer has satisfied the
condition in Rule 400(a) with respect to that covered investment
contract; and
An analysis supporting that certification.
The purpose of this Form TR filing is to apprise investors, the
Commission, and the public that the issuer has determined that the
covered investment contract has ceased to exist, as well as the basis
on which the issuer made that determination.\369\ The issuer's analysis
should be sufficiently clear and detailed such that a reasonable
investor could understand how the issuer made its determination. In
conducting this analysis, we expect that the issuer would refer to
information it disclosed in response to proposed Rule 103(b)(1),\370\
to the extent it had relied on the startup exemption or the fundraising
exemption and, therefore, was required to provide such information. As
noted in section II.A.4.b.i above, those disclosures may provide
issuers, investors, and other market participants with a more objective
means by which to determine whether a covered investment contract has
ceased to exist. The Form TR filing requirement would serve to inform
investors and other members of the public that the issuer has
determined that the protections of the Federal securities laws are no
longer applicable to transactions involving a particular crypto
asset.\371\
---------------------------------------------------------------------------
\369\ In the 2026 Interpretation, the Commission stated that
``[a] non-security crypto asset that was offered and sold subject to
an investment contract is no longer subject to an investment
contract if . . . the issuer . . . publicly announce[s] that it will
no longer perform the essential managerial efforts it represented or
promised it would undertake (e.g., where the issuer effectively
`abandons' the development of a crypto system).'' 2026
Interpretation at 13723. The Commission further stated that ``[a]
public announcement of non-performance should be widely disseminated
to market participants and unambiguous in order for investors to no
longer reasonably expect the issuer to perform the essential
managerial efforts.'' Id. at n.98. A Form TR filed pursuant to
proposed Rule 400 that contains the information required by that
form would constitute such a public announcement.
\370\ See proposed 17 CFR 228.103(b)(1) (requiring disclosure,
among other things, of the issuer's representations or promises to
engage in essential managerial efforts under the covered investment
contract and its progress with respect to such representations or
promises).
\371\ With such knowledge, purchasers of that crypto asset may
choose to take other steps to protect themselves, including seeking
contractual arrangements with their transactional counterparties
that provide them with potential recourse.
---------------------------------------------------------------------------
The investment contract safe harbor would be available to any
issuer that satisfies its conditions. Thus, the safe harbor would be
available to issuers that have utilized the startup exemption or the
fundraising exemption once they have satisfied the safe harbor's
conditions. The safe harbor also would be available to issuers that
have not utilized these proposed exemptions.
Regardless of the path taken, if issuers have satisfied the
investment contract safe harbor, the Commission would take the position
in its administration of the Federal securities laws that the
reporting, registration, and other requirements of the Federal
securities laws no longer apply from the point in time at which the
issuer satisfied the safe harbor and thereafter. As with any safe
harbor, however, the investment contract safe harbor would apply only
to the extent that an issuer satisfies its conditions, and the
Commission would not be precluded from challenging whether an issuer
did, in fact, satisfy those conditions. For example, if an issuer files
a Form TR and misrepresents, either intentionally or otherwise, that it
has satisfied the conditions in Rule 400(a), the Commission may take
the position that, notwithstanding the issuer's attempted reliance on
the investment contract safe harbor, the issuer's covered investment
contract has not ceased to exist and the reporting, registration, and
other requirements of the Federal securities laws continue to apply.
[[Page 54555]]
Finally, even if an issuer has not satisfied the investment
contract safe harbor, a crypto asset may nonetheless not be subject to
an investment contract under the Howey test. That is, the investment
contract safe harbor, if satisfied, does not provide the sole means by
which a crypto asset may fall outside the scope of the Federal
securities laws.\372\ Moreover, while the investment contract safe
harbor would control with respect to the Commission's administration of
the Federal securities laws, it would not prevent other parties from
asserting that a crypto asset is subject to an investment contract (or
is otherwise a security).
---------------------------------------------------------------------------
\372\ See, e.g., 2026 Interpretation at 13723 (noting that a
covered investment contract may cease to exist if an issuer fails to
satisfy its representations or promises to engage in essential
managerial efforts under the covered investment contract).
---------------------------------------------------------------------------
Request for Comment
124. Should we adopt Rule 400 as proposed?
125. Are there any portions of Rule 400 that we either should not
adopt or that we should change in the final rules? If so, please
identify those provisions along with any recommended changes to the
rule.
126. Should Rule 400 address any of the other terms that are
enumerated in the Securities Act and Exchange Act definitions of
``security'' in addition to the term ``investment contract'' (such as,
for example, the terms ``note'' or ``certificate of interest or
participation in any profit-sharing agreement'')?
127. Are there other conditions to relying on Rule 400 that we
should include in the final rule?
128. Would investors and other market participants stand to benefit
from the Form TR filing requirement in Rule 400(b)? Should Form TR
require different or additional information as compared to what we have
proposed? In particular, is there any additional information we should
require pursuant to Part I of Form TR?
129. Instead of Form TR, which also would be used as a transition
report pursuant to the proposed startup exemption and fundraising
exemption, should there be a dedicated form for reliance on Rule 400
(e.g., to avoid potential investor confusion)?
130. Should Form TR require issuers to include an analysis
supporting their determination with respect to the proposed condition
in Rule 400(a)? Alternatively, should we allow issuers to certify that
they have made this determination without requiring them to include any
analysis?
131. Would codifying the 2026 Interpretation in Rule 400 as we have
proposed provide greater certainty to issuers? Is there a more
objective standard that we should use in place of the proposed standard
in Rule 400(a) for determining whether an issuer has completed or
otherwise permanently ceased all essential managerial efforts that it
represented or promised it would engage in under a covered investment
contract and is not making and does not intend to make any new
representations or promises to engage in essential managerial efforts
with respect to the crypto asset?
132. Is additional guidance required beyond the views that the
Commission expressed in the 2026 Interpretation regarding the types of
efforts that may be regarded as essential managerial efforts for
purposes of the investment contract safe harbor? If so, which issues
should we address on this point?
133. Should we modify the proposed safe harbor to cover only
certain circumstances in which a covered investment contract may cease
to exist? For example, should the proposed safe harbor only be
available for issuers that have fulfilled their representations or
promises to engage in essential managerial efforts under the covered
investment contract?
134. We recognize that some parties may be reluctant to rely on the
investment contract safe harbor because they may view the safe harbor
as requiring a tacit admission that the crypto asset previously was
subject to an investment contract and that the party relying on the
safe harbor was the issuer for such investment contract. Are there
changes we could make to the investment contract safe harbor that would
address these concerns? Will issuers opt to rely on the 2026
Interpretation instead of using Rule 400?
135. Should Rule 400 also set forth a safe harbor from the term
``investment contract'' in the definitions of ``security'' in section
2(a)(36) of the Investment Company Act and section 201(a)(18) of the
Investment Advisers Act of 1940? If so, how should we revise Rule 400
to incorporate these uses of the term?
E. Preemption of State Registration and Qualification Requirements
(Definition of ``Qualified Purchaser'' in Subpart E, Rule 500)
Section 18(a) of the Securities Act provides that States may not
require registration or qualification of ``covered securities.'' \373\
Section 18(b)(3) of the Securities Act states that a security ``is a
covered security with respect to the offer or sale of the security to
qualified purchasers, as defined by the Commission by rule.'' \374\ We
are proposing to add a new definition of ``qualified purchaser'' under
section 18(b)(3) of the Securities Act such that State securities law
registration and qualification requirements would be preempted with
respect to offers and sales of covered investment contracts pursuant to
an exemption in Regulation Crypto Assets, as well as secondary market
transactions with respect to such covered investment contracts by any
person other than an issuer, underwriter, or dealer of such covered
investment contracts.\375\ With respect to secondary market
transactions, the proposed amendments would preempt State securities
law registration and qualification requirements for covered investment
contracts that were initially sold by the issuer either pursuant to an
exemption in Regulation Crypto Assets or another exemption under the
Federal securities laws. Such secondary market preemption would
continue for the period during which the issuer continues to satisfy
the disclosure and filing and/or periodic reporting requirements of an
exemption under Regulation Crypto Assets for that covered investment
contract.
---------------------------------------------------------------------------
\373\ 15 U.S.C. 77r(a).
\374\ 15 U.S.C. 77r(b)(3).
\375\ The proposed definition of ``qualified purchaser'' under
section 18(b)(3) of the Securities Act does not relate to or affect
the definition of the term ``qualified purchaser'' under section
2(a)(51) of the Investment Company Act of 1940 and the rules
thereunder.
---------------------------------------------------------------------------
1. Background
Section 18(a) of the Securities Act provides that no law, rule,
regulation, or order, or other administrative action of any state (or
political subdivision thereof) requiring (or with respect to) the
registration or qualification of securities shall (1) directly or
indirectly apply to a covered security or to a security that will be a
covered security upon completion of the transaction, (2) directly or
indirectly prohibit, limit, or impose any conditions upon the use of
any offering document that is prepared by or on behalf of the issuer,
among other things, or (3) directly or indirectly prohibit, limit, or
impose any conditions based on the merits of such offering or issuer,
upon the offer or sale of any covered security.\376\
---------------------------------------------------------------------------
\376\ 15 U.S.C. 77r(a)(1)-(3).
---------------------------------------------------------------------------
Sections 18(b)(1), (b)(2), and (b)(4) of the Securities Act specify
certain covered securities.\377\ Section 18(b)(3) provides that a
security ``is a covered security with respect to the offer or sale
[[Page 54556]]
of the security to qualified purchasers, as defined by the Commission
by rule'' and states that ``[i]n prescribing such rule, the Commission
may define the term `qualified purchaser' differently with respect to
different categories of securities, consistent with the public interest
and the protection of investors.'' \378\
---------------------------------------------------------------------------
\377\ 15 U.S.C. 77r(b)(1)-(2) and 77r(b)(4).
\378\ 15 U.S.C. 77r(b)(3).
---------------------------------------------------------------------------
Section 18(c) of the Securities Act preserves State authority with
respect to ``covered securities'' in several ways. Pursuant to section
18(c), States:
retain jurisdiction under the laws of such State to
investigate and bring enforcement actions, in connection with
securities or securities transactions, with respect to (i) fraud or
deceit or (ii) unlawful conduct by brokers or dealers;
retain the ability to require the filing of any document
filed with the Commission (together with annual or periodic reports of
the value of securities sold or offered to be sold to persons located
in such state, if such sales data is not included in documents filed
with the Commission), solely for notice purposes and the assessment of
any fee, together with a consent to service of process and any required
fee; and
have the power to suspend the offer or sale of securities
within the state as a result of the failure to submit any filing or
required fee.\379\
---------------------------------------------------------------------------
\379\ See 15 U.S.C. 77r(c)(1)-(3).
---------------------------------------------------------------------------
Congress added these provisions to section 18 of the Securities Act
when it enacted the National Securities Markets Improvement Act of 1996
(``NSMIA''). The legislative history indicates that Congress intended
for its amendments preempting State law in section 18 to ``eliminate
the costs and burdens of duplicative and unnecessary regulation by, as
a general rule, designating the Federal government as the exclusive
regulator of national offerings of securities.'' \380\ The Commission
has understood the policy underlying NSMIA's enactment to suggest that
states should ``generally retain their authority to regulate small,
regional, or intrastate securities offerings.'' \381\
---------------------------------------------------------------------------
\380\ H.R. Rep. No. 622, 104th Cong. 2d Sess. at 16 (1996)
(House Report).
\381\ See 2015 Regulation A Release at section II.H.3.d (quoting
House Report at 16); see also Lindeen v. SEC, 825 F.3d 646, 650
(D.C. Circ. 2016) (upholding the Commission's preemption of Tier 2
Regulation A offerings and stating that NSMIA ``designated the
federal government to oversee nation-wide securities offerings while
allowing the states to retain control over small, regional or
intrastate offerings,'' and that NSMIA intended for the SEC to play
a role in determining its preemptive scope by: (i) including in its
list of covered securities any security sold to qualified
purchasers, as defined by the Commission by rule, and (ii) granting
the Commission authority to define the term qualified purchaser
differently with respect to different categories of securities,
consistent with the public interest and the protection of investors)
(citations omitted).
---------------------------------------------------------------------------
Based on industry feedback and our own observations of covered
investment contract offerings, we believe that most issuers of covered
investment contracts will conduct offerings that are neither regional
nor solely intrastate. As explained by the President's Working Group
Report, ``[a]ctivity in digital asset markets is often characterized as
borderless, reflecting the ease of transacting worldwide.'' \382\ One
commenter observed that ``every policy discussion, whether in the
securities context or otherwise, concerning blockchain technology must
take account of its global phenomenology.'' \383\ In addition,
hallmarks of crypto assets include their ``ability to reach people
without intermediaries and . . . ease of storage, transport, and
access.'' \384\ As such, we expect that issuers will not routinely seek
to limit sales of covered investment contracts to a single state
because of the unlikelihood that information about such asset will be
limited or tied to one geographic location.
---------------------------------------------------------------------------
\382\ President's Working Group Report at 17.
\383\ Letter from Consensys (Feb. 21, 2025).
\384\ See, e.g., Commissioner Hester M. Peirce, Paper, Plastic,
Peer-to-Peer. (Mar. 15, 2021), available at https://sec.gov/newsroom/speeches-statements/peirce-paper-plastic-peer-peer-031521.
---------------------------------------------------------------------------
This technological and geographic reality makes the review and
qualification of covered investment contracts a difficult and
inefficient task for issuers to conduct on a state-by-state basis. This
potential difficulty and inefficiency supports using section 18(b)(3)
to preempt State registration and qualification requirements in this
context. For example, the Commission has previously observed that
offerings made through the internet could result in an issuer
potentially violating State securities laws absent preemption of State-
level registration and qualification requirements.\385\ The Commission
also has discussed how preemption would reduce both costs associated
with State registration laws and issuer uncertainty about whether State
registration is required.\386\
---------------------------------------------------------------------------
\385\ See, e.g., Crowdfunding Adopting Release at 71519; 2015
Regulation A Release at 21856-62.
\386\ See, e.g., Crowdfunding Adopting Release at 71519; 2015
Regulation A Release at 21886-88.
---------------------------------------------------------------------------
Preemption would more efficiently allow issuers to communicate with
potential investors across state lines, which we anticipate will happen
within the ordinary course of capital formation efforts undertaken by
covered investment contract issuers given the nature of the asset, the
underlying blockchain technology, and potential markets. We anticipate
that preemption of State securities laws registration and qualification
requirements would reduce issuer costs and promote efficiency by
reducing duplicative requirements. We also believe such preemption
would enhance secondary market liquidity by eliminating uncertainty as
to whether investors need to register or qualify their resale of a
covered investment contract in a specific state. Our proposed rules
contain investor protections that could address potential concerns that
may arise as a result of the preemption of State securities laws. These
investor protections include the following:
Disclosure requirements under the startup exemption and
the fundraising exemption;
Amendment and ongoing reporting obligations under the
startup exemption and the fundraising exemption, respectively;
A ``bad actor'' disqualification provision applicable to
the startup exemption and the fundraising exemption;
Issuer eligibility conditions under the fundraising
exemption;
A maximum four-year offering duration and one-time use
limitation under the startup exemption;
A qualification process under the fundraising exemption;
Investment limitations under the fundraising exemption for
non-accredited investors;
Financial statement disclosure and assurance requirements
under the fundraising exemption; and
Application of the Federal securities laws' antifraud and
antimanipulation provisions.
We also note that covered investment contract issuers often engage
in developing and utilizing associated crypto networks and associated
crypto applications that have publicly available open-source code, as
well as networks and applications in which ownership records and crypto
asset transactions are recorded. Given the unique technological
attributes of crypto assets, we expect that many such issuers will
publish their source code in a manner that makes it available to
potential investors in all states prior to conducting any offering. Put
simply, access and information concerning crypto assets and their
associated crypto networks and associated crypto applications generally
are not (nor expected to be) limited to a single state.
As a result, consistent with the public interest and protection of
investors, we are proposing preemption of State registration and
qualification
[[Page 54557]]
requirements for transactions conducted in reliance on one or more of
the exemptions in Regulation Crypto Assets and secondary market
transactions (i.e., transactions by any person other than an issuer,
underwriter, or dealer) with respect to a covered investment contract
for which the issuer has satisfied the requirements of an exemption
under Regulation Crypto Assets.
2. Proposed Rule
Subpart E of Regulation Crypto would set forth a definition of
``qualified purchaser'' in Rule 500. The proposed definition would, for
purposes of section 18(b)(3) of the Securities Act (15 U.S.C.
77r(b)(3)) provide that a ``qualified purchaser'' include any person to
whom securities are offered or sold pursuant to an offering under
Regulation Crypto Assets or an offering pursuant to a transaction by
any person other than an issuer, underwriter, or dealer with respect to
a covered investment contract; provided that: (1) the issuer has
satisfied the requirements of an exemption under Regulation Crypto
Assets with respect to such covered investment contract; and (2) the
issuer remains subject to, and is current with respect to, such
exemption's disclosure and filing requirements and/or periodic
reporting obligations, as applicable.\387\ Thus, covered investment
contracts sold in an offering conducted pursuant to Regulation Crypto
Assets, as well as secondary market transactions of such covered
investment contracts under the circumstances described in the section
above, would be ``covered securities,'' resulting in preemption of
certain State securities regulations as provided under section 18 of
the Securities Act.
---------------------------------------------------------------------------
\387\ When using its authority to define ``qualified
purchasers'' under section 18(b)(3), the Commission is not
prohibited from concluding that all offerees and purchasers in an
offering are qualified purchasers. See Lindeen, 825 F.3d at 654.
---------------------------------------------------------------------------
With ``covered security'' status, transactions conducted pursuant
to Regulation Crypto Assets would be primarily regulated by the Federal
securities laws. Our goal, as it was when the Commission adopted
Regulation Crowdfunding \388\ and Regulation A,\389\ is to enhance
efficiency and reduce duplicative regulation while maintaining investor
protection. We also note that several commenters supported preemption
of State securities regulation for crypto asset transactions.\390\
---------------------------------------------------------------------------
\388\ See Crowdfunding Adopting Release at section III.B.7.
\389\ See 2015 Regulation A Release at section II.H.3.b and
section II.H.3.d.
\390\ See, e.g., letters from TDC 3; GUARDD (May 13, 2025);
CrowdCheck Law; CfPA.
---------------------------------------------------------------------------
The proposed exemption would apply preemption to all offerings of
covered investment contracts under the startup exemption and the
fundraising exemption. We considered whether our proposed definition of
``qualified purchaser'' should distinguish between Tier 1 and Tier 2
offerings conducted pursuant to the fundraising exemption. Unlike what
the Commission observed in the Regulation A Release in 2015 with
respect to Tier 1 offerings, we do not anticipate that there will be
issuers likely to rely on our proposed exemptions to conduct offerings
that are more ``local'' in nature (given, as explained in the
background section above, our understanding of the crypto asset
ecosystem and its use of technology that spans geographies and aims to
develop decentralized networks). There are additional investor
protections for Tier 1 offerings under the fundraising exemption that
are not present with respect to Tier 1 Regulation A offerings. These
include ongoing reporting requirements for issuers and investment
limitations for non-accredited investors (neither of which apply to
issuers or investors, respectively, in Tier 1 offerings conducted under
Regulation A). In light of these investor protection-based requirements
applicable to both Tier 1 and Tier 2 offerings under the fundraising
exemption, we believe it is appropriate to preempt both types of
offerings.
We also considered whether preemption should be available for
offerings under only the fundraising exemption and not the startup
exemption. Although the startup exemption would not include financial
statement disclosure requirements, ongoing reporting requirements to
the same extent as the fundraising exemption, or investment
limitations, we believe the investor protection-based requirements of
the startup exemption support preemption. For example, the startup
exemption's disclosure requirements would require issuers to provide
the same disclosures under Rule 103 as would be required under the
fundraising exemption. In addition, although not as robust as the
ongoing reporting obligations under the fundraising exemption, the
startup exemption would include an annual amendment requirement to
reflect any material changes in the information previously disclosed.
When considered in the context of the lower offering limit (as compared
to the fundraising exemption), as well as the four-year maximum
duration and one-time use requirements, we believe the startup
exemption contains appropriate investor protections that also support
preemption.
For both the startup exemption and fundraising exemption, a
potential investor's need for an illiquidity discount at the time of
the initial purchase of a covered investment contract (issued pursuant
to one of the proposed exemptions) likely would depend on the extent
that a liquid secondary market for securities issued pursuant to
Regulation Crypto Assets develops, which could be hampered by
uncertainty as to whether resales need to be qualified or registered
with specific states. In order to encourage capital formation and not
inhibit the development of this potential secondary market, we are
including the specified secondary market transactions in our proposed
definition of ``qualified purchaser.''
The proposed amendment also would apply preemption to all secondary
market transactions of a covered investment contract--by any person
other than the issuer, an underwriter, or a dealer--if the issuer of
such covered investment contract has satisfied the requirements of an
exemption under Regulation Crypto Assets with respect to that covered
investment contract. Thus, under the proposed amendments, preemption
would apply to secondary market transactions of such covered investment
contracts regardless of whether a given covered investment contract was
initially issued under one of the Regulation Crypto Assets exemptions
so long as the issuer (1) satisfies an exemption under Regulation
Crypto Assets with respect to such covered investment contract and (2)
remains subject to (and is current with respect to) such exemption's
disclosure and filing requirements and/or periodic reporting
obligations (as applicable). For example, if an issuer offered and sold
some covered investment contracts under the fundraising exemption, and
then later offered and sold some of the same covered investment
contracts under Regulation D, secondary market transactions in those
covered investment contracts all would be equally subject to
preemption.
We believe it is appropriate to apply preemption broadly to
secondary market transactions involving the same covered investment
contract (regardless of the manner in which they were initially offered
and sold) because of the investor protections provided by secondary
market participants' ability to access and benefit from the issuer's
initial and ongoing disclosures under either the startup exemption or
the fundraising exemption. To that end, such
[[Page 54558]]
preemption would apply only to the extent that the issuer remains
subject to, and current with respect to,\391\ the applicable Regulation
Crypto Asset exemption's disclosure and filing requirements or periodic
reporting obligations.\392\ To illustrate, if an issuer offered and
sold some covered investment contracts under the startup exemption,
preemption would apply to secondary market transactions involving those
covered investment contracts (and any of the same covered investment
contracts that the issuer otherwise sold) during the four-year period,
so long as the issuer continued to comply with the exemption's
disclosure and filing requirements. If, after four years, the covered
investment contract had not ceased to exist and the issuer filed a Form
TR, thereby concluding its disclosure and filing requirements under the
startup exemption, then preemption would not continue to apply to
secondary market transactions involving any covered investment
contracts that remained outstanding at that time.
---------------------------------------------------------------------------
\391\ In the context of proposed Rule 500, ``current'' means
that the issuer would have had to file all periodic reports required
under the fundraising exemption or made all required amendments to
the information previously reported under startup exemption. If an
issuer fell out of compliance with those requirements, preemption
would not apply until the issuer cured such defect.
\392\ Proposed Rule 500's reference to ``periodic reporting
obligations'' is intended to cover each of the reporting obligations
under proposed Rule 305 other than the requirement to file current
reports under proposed Rule 305(a)(4) (i.e., current reports on Form
1-UC). We did not include these current reports in the proposed rule
because it may be difficult for secondary market participants that
are unaffiliated with the issuer to determine whether the issuer is
current with respect to the filing of a Form 1-UC (based on their
potential inability to independently determine whether a reportable
event had occurred). Thus, such secondary market participants may
not be able to determine whether preemption would apply to a
potential secondary market transactions in the issuer's covered
investment contract or whether they would have to comply with State
registration and qualification requirements.
---------------------------------------------------------------------------
Request for Comment
136. Should we adopt the definition of ``qualified purchaser'' in
Rule 500 as proposed?
137. Are there any portions of the proposed definition of
``qualified purchaser'' that we either should not adopt or that we
should change in the final rules? If so, please identify those
provisions along with any recommended changes to the rule.
138. Is there an alternative approach by which we might address the
concern that State registration and qualification requirements could
pose a significant impediment to the use of the proposed rules? Should
we treat all offerees and all purchasers in an offering conducted
pursuant to Regulation Crypto Assets as qualified purchasers or should
we impose additional limitations (based on, for example, an income
threshold, a net worth threshold, and/or an investment assets
threshold)?
139. Are there other approaches we should consider to defining
``qualified purchaser'' for Regulation Crypto Asset offerings? For
example, should we define ``qualified purchaser'' as any offeree or
purchaser in a Regulation Crypto Asset offering by an issuer that meets
certain criteria (e.g., specified financial criteria or operating or
other criteria indicative of reduced risk)? Or should we define this
term based on attributes of the offering that may reduce risk to
investors (e.g., firm commitment underwritten offerings or offerings
through a registered broker-dealer)? Alternatively, should we consider
a ``qualified purchaser'' definition that reflects some attributes of
the purchaser, issuer, and offering? Should we include, as proposed in
our definition of ``qualified purchaser,'' sales and offers made in
secondary market transactions with respect to a covered investment
contract that was issued pursuant to an offering relying on an
exemption in Regulation Crypto Assets? Is it necessary or appropriate
to include secondary market transactions as proposed?
140. Should the preemption of secondary market transactions be
limited to the resale of covered investment contracts that were
initially issued pursuant to an offering relying on an exemption in
Regulation Crypto Assets and not another available exemption under the
Federal securities laws? If so, how would secondary market participants
be able to distinguish between covered investment contracts based on
the manner in which they were originally issued, especially for covered
investment contracts that involve fungible crypto assets?
141. Proposed Rule 500 generally would provide for preemption of
secondary market transactions if issuer has satisfied the requirements
of an exemption under Regulation Crypto Assets and if the issuer
remains subject to, and is current with respect to, the disclosure and
filing and/or periodic reporting requirements of such exemption. Will
market participants be able to determine whether the issuer has
satisfied the requirements of an exemption under Regulation Crypto
Assets such that they would know that secondary market transactions in
the covered investment contracts are preempted? If not, should we adopt
a different standard? For example, should the standard be that it is
reasonable for a purchaser to conclude that the issuer has satisfied
the requirements of an exemption under Regulation Crypto Assets?
Alternatively, should the standard be that it is reasonable for a
purchaser to conclude that the issuer has relied on an exemption under
Regulation Crypto Assets? Should the standard be something else?
142. Should preemption of secondary market transactions apply for
so long as the respective issuer of the covered investment contract
(under either the startup or fundraising exemption) is current with
respect to such exemption's disclosure and filing requirements and/or
periodic reporting obligations, as applicable? For example, would a
covered investment contract holder be able to determine whether the
issuer is current with respect to an exemption's disclosure and filing
requirements and/or periodic reporting obligations, as applicable, such
that the investor would know whether preemption applies to its
secondary market transactions in that covered investment contract? If
not, should preemption of secondary market transactions apply for so
long as the respective issuer of the covered investment contract (under
either the startup or fundraising exemption) is subject to (and not
necessarily current with respect to) such exemption's disclosure and
filing requirements and/or periodic reporting obligations, as
applicable?
143. Should we revise proposed Rule 500 such that secondary market
preemption would depend on the issuer satisfying its current reporting
obligations? That is, should we revise Rule 500 such that preemption of
secondary market transactions would apply for so long as the respective
issuer of the covered investment contract (under either the startup or
fundraising exemption) is current with respect to such exemption's
disclosure and filing requirements and/or periodic and current
reporting obligations, as applicable? Would it be too difficult for
secondary market participants that are unaffiliated with the issuer to
know whether the issuer had satisfied its current reporting
obligations, given their potential inability to independently determine
whether a reportable event had occurred? If so, are there any
mechanisms we could include to address this?
144. Should we otherwise modify the conditions under which
preemption of secondary market transactions would apply? Should we
consider limiting the proposed preemption of State securities laws to
only certain aspects of
[[Page 54559]]
Regulation Crypto Assets offerings? For example, as in Regulation A,
should we limit preemption to only Tier 2 offerings under the proposed
fundraising exemption? Should preemption of secondary market
transactions apply equally regardless of whether the issuer satisfied
the startup exemption or the fundraising exemption?
General Request for Comment
We request and encourage any interested person to submit comments
on any aspect of this proposing release, other matters that might have
an impact on the topics discussed in this release, and any suggestions
for additional changes. Please be as specific as possible in your
discussion and analysis of any additional issues. We particularly
welcome comments on any costs, burdens, or benefits that may result
from possible regulatory responses related to the items identified in
this release or otherwise proposed by commenters.
III. Other Matters
This proposing release is an economically significant regulatory
action under section 3(f)(1) of Executive Order 12866 and has been
reviewed by the Office of Management and Budget (``OMB''), consistent
with Executive Order 14215.
IV. Economic Analysis
We are mindful of the costs imposed by, and the benefits obtained
from, our rules. Securities Act section 2(b) \393\ and Exchange Act
section 3(f) \394\ require us, when engaging in rulemaking that
requires us to consider or determine whether an action is necessary or
appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition, and capital formation. In addition, Exchange Act section
23(a)(2) requires the Commission to consider the effects on competition
of any rules that the Commission adopts under the Exchange Act and
prohibits the Commission from adopting any rule that would impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act.\395\
---------------------------------------------------------------------------
\393\ 15 U.S.C. 77b(b).
\394\ 15 U.S.C. 78c(f).
\395\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------
Offerings of covered investment contracts are different from
traditional securities offerings, such as equity or debt offerings. As
discussed throughout this release, many covered investment contracts
eventually will cease to exist. Although the covered investment
contracts are subject to the Federal securities laws when first offered
or sold, the crypto assets may subsequently cease to be subject to the
covered investment contracts. At that point, the Federal securities
laws no longer would apply. As noted earlier in the release, the
Commission's existing rules generally do not contemplate or facilitate
this type of evolution.\396\
---------------------------------------------------------------------------
\396\ See discussion in section I.
---------------------------------------------------------------------------
In contrast to traditional securities, whose value may depend on
ownership rights and/or expected cash flows, the value of crypto assets
typically depends on their utility and security.\397\ These features
often benefit from network effects, where the utility and security of a
crypto system increases as more users participate and interact with the
crypto system. In addition to crypto assets, sometimes economic
incentives are also funded by externally-raised capital. As the crypto
network matures, incentives can be financed by, for example,
transaction fees, trading fees, and service fees. The Commission's
existing exemptions have features that may impede the development of
crypto networks. For example, securities issued pursuant to the
Commission's existing exemptions may be restricted securities \398\ or
otherwise subject to resale restrictions.\399\ Those exemptions also
may limit the extent to which an issuer may sell securities to retail
investors,\400\ which could result in concentrated (rather than
widespread) holdings, impeding the accretion of desired network
effects. Thus, issuers of covered investment contracts are likely to
have reasons for choosing to raise capital using covered investment
contracts instead of issuing traditional securities.
---------------------------------------------------------------------------
\397\ See Lin W. Cong, et al., Tokenomics: Dynamic Adoption and
Valuation, 34 Rev. Fin. Studs. 1105 (Sept. 2021).
\398\ See, e.g., 17 CFR 230.144(a)(3)(ii) (providing that the
term ``restricted securities'' incudes ``[s]ecurities acquired from
the issuer that are subject to the resale limitations of Sec.
230.502(d) under Regulation D'').
\399\ See, e.g., 17 CFR 227.501 (imposing a one-year restriction
on resales of securities issued pursuant to Regulation
Crowdfunding).
\400\ See, e.g., 17 CFR 230.506(c)(2)(i) (requiring that all
purchasers of securities sold in any offering under the exemption to
be ``accredited investors,'' as defined in 17 CFR 230.501(a)).
---------------------------------------------------------------------------
Further, many of the Commission's existing rules require issuers to
provide disclosures that may not be relevant to investors in covered
investment contract offerings, and those rules often do not elicit
other types of disclosures that are likely to be material to such
investors. Existing disclosure rules are inapposite partially because
purchasers of covered investment contracts are unlikely to have
ownership rights on assets or cash flows, as they do with equity
securities. Unlike traditional securities, many purchasers of covered
investment contracts could be potential users of the network or
application. These users may derive nonpecuniary benefits from
providing capital to issuers of covered investment securities and thus
be willing to provide capital at lower cost. This contrasts with
traditional equity securities where investors have claims on future
cash flows and are generally distinct from intended customers.\401\
---------------------------------------------------------------------------
\401\ See, e.g., Sabrina Howell, Marina Niessner & David
Yermack, Initial Coin Offerings: Financing Growth with
Cryptocurrency Token Sales, 33 Rev. Fin. Studs. 3925 (Sept. 2020)
(``Howell, et al.''). The study argues that ``raising capital from
customers could potentially redistribute network growth gains from
financial intermediaries, such as VCs, to developers and customers.
It also helps promote the brand among customers and provide the
issuer with an early signal about demand.'' See id. at 3946-47.
---------------------------------------------------------------------------
Many commenters that provided input to the Crypto Task Force
requested that the Commission adopt disclosure rules tailored to
offerings of covered investment contracts.\402\ Several commenters
suggested that the Commission's existing offering regimes, including
the related disclosure requirements, are unfit for application to
covered investment contracts and their issuers.\403\ Other commenters
supported the adoption of an exemption from the registration
requirements under the Securities Act for offers and sales of crypto
assets during the development of a blockchain project.\404\
---------------------------------------------------------------------------
\402\ See supra section I.B.
\403\ See supra section I.B.3.
\404\ See supra section I.B.4.
---------------------------------------------------------------------------
The proposed rules would address the need for a tailored offering
regime for covered investment contracts. The proposed offering regime
is intended to facilitate capital formation and accommodate innovation
within the crypto asset markets while, at the same time, ensuring that
investors are adequately protected and provided with the information
they need to make informed investment decisions. The proposed rules
would achieve these goals by, among other things, establishing two new
exemptions from Securities Act section 5--the startup exemption and the
fundraising exemption--as well as the investment contract safe harbor.
These proposed rules are described in more detail in section II above.
Although the proposed rules are intended to promote capital
formation while ensuring that investors are adequately protected, the
proposed rules also may advance broader public benefits. For example,
the proposed rules may enhance competition and
[[Page 54560]]
innovation in markets for covered investment contracts and encourage
offers and sales of covered investment contracts to be conducted in the
United States, rather than abroad. Further, innovation in decentralized
financing and transactional systems that facilitate automated, non-
intermediated financial market activities (which often utilize
cryptographically-secured distributed ledgers \405\) could have
efficiencies (e.g., reduced transaction and intermediation costs and
greater transactional speed and accessibility) \406\ that benefit U.S.
entrepreneurship and the public.
---------------------------------------------------------------------------
\405\ See supra note 3.
\406\ See Christian Catalini & Joshua S. Gans, Some Simple
Economics of the Blockchain, 63 Commc'n ACM 80, 85 (June 18, 2020),
available at https://doi.org/10.1145/3359552 (noting blockchain
technology lowering the cost of verification of transaction
attributes and the cost of coordinating economic activity over the
internet).
---------------------------------------------------------------------------
We consider below the potential benefits and costs of the proposed
rules and their likely effects on efficiency, competition, and capital
formation. Many of the benefits and costs are difficult to quantify or
estimate with any degree of certainty. These difficulties are
exacerbated by the limited public data that would inform how market
participants may respond to the proposed rules.\407\ Where we are
unable to quantify the economic effects of the proposal, we provide a
qualitative assessment of the potential effects and encourage
commenters to provide data and information that would help quantify the
benefits and costs of the proposed rules, and the potential impacts of
the proposed rules on efficiency, competition, and capital formation.
---------------------------------------------------------------------------
\407\ See section IV.A.2 for a discussion of available data.
---------------------------------------------------------------------------
A. Economic Baseline
The baseline against which the benefits, costs, and effects on
efficiency, competition, and capital formation of the proposed rules
are measured consists of the current state of the market and the
current regulatory framework, in which issuers raise capital through
securities offerings by registering the offer and sale of those
securities under the Securities Act unless they can rely on an
exemption from registration. The economic analysis considers the
existing Federal securities laws and the Commission's rules and
regulations, as further clarified through the views expressed by the
Commission in the 2026 Interpretation,\408\ as part of its economic
baseline against which the costs and benefits of the proposed rules are
measured.
---------------------------------------------------------------------------
\408\ See supra note 51.
---------------------------------------------------------------------------
The 2026 Interpretation set forth an interpretation of the
definition of ``security'' as applied to crypto assets and transactions
involving crypto assets.\409\ The interpretation classified crypto
assets into five categories: digital commodities, digital collectibles,
digital tools, stablecoins, and digital securities. The 2026
Interpretation addressed the Commission's view on how a non-security
crypto asset can be offered and sold subject to an investment
contract.\410\ The interpretation also addressed how a non-security
crypto asset ceases to be subject to an investment contract.
Specifically, when a purchaser of a non-security crypto asset that had
been subject to an investment contract could no longer reasonably
expect the issuer's representations or promises to engage in essential
managerial efforts to remain connected to the non-security crypto
asset, the non-security crypto asset separates from such
representations or promises, and thereafter the non-security crypto
asset is not subject to the Federal securities laws. The 2026
Interpretation set forth the Commission's view that a non-security
crypto asset would no longer be subject to an investment contract when:
(1) the issuer has fulfilled its representations or promises to engage
in essential managerial efforts, or (2) the purchaser would not
reasonably expect the issuer to be able to fulfill or to continue to
engage in the essential managerial efforts it represented or promised
it would undertake.
---------------------------------------------------------------------------
\409\ See section I.A.2.b above for more detailed information on
the 2026 Interpretation.
\410\ See supra note 53.
---------------------------------------------------------------------------
1. Current Methods of Raising Up To $75 Million in Capital
The potential economic impact of the proposed rules, including
their effects on efficiency, competition, and capital formation, will
depend on how the proposed exemptions compare to existing methods that
issuers currently may have available to raise capital. Issuers can
potentially access a variety of external financing sources in the
capital markets through registered or exempt offerings of debt, equity,
and hybrid securities, as well as bank loans. We expect issuers to
choose the capital raising option that is optimal for them. The choice
of financing method may depend on, among other things, the size of the
issuer, the type of investors the issuer seeks to attract, and the
amount of new capital sought.\411\ For instance, small businesses
usually have smaller, more variable cash flows than larger, more
established companies, and internal financing from their own business
operations tends to be limited and unstable. These businesses tend to
have smaller asset bases \412\ and, thus, less collateral for
traditional bank loans. We expect that most issuers of covered
investment contracts would be small.\413\ Registered offerings entail
initial and ongoing costs that can weigh more heavily on smaller
issuers, providing incentives to remain private and to raise capital
outside of public markets.\414\ To the extent that these issuance costs
constrain issuers' access to capital, they may result in
underinvestment in some value-generating projects and thus potentially
less efficient allocation of capital to investment projects. Hence,
issuers, particularly small issuers and issuers in early stages of
development, may benefit significantly from the Commission's exempt
offering framework for raising capital. This section describes the
various offering methods currently available, including existing
offering exemptions.
---------------------------------------------------------------------------
\411\ Issuers of covered investment contracts may also consider
how certain financing methods facilitate or restrict their ability
to establish a functional associated crypto network or associated
crypto application. For example, does the financing method impede
issuers' ability to decentralize the associated crypto network or
associated crypto application?
\412\ See, e.g., John Asker, et al., Corporate Investment and
Stock Market Listing: A Puzzle?, 28 Rev. Fin. Studs. 342 (Feb. 7,
2015), available at https://ssrn.com/abstract=1603484 (retrieved
from SSRN Elsevier database).
\413\ See Howell, et al., supra note 401. This study finds that
companies conducting ICO issuances had on average thirteen employees
(with a median of three employees). See also Ruediger Fahlenbrach &
Marc Frattaroli, ICO Investors, 35 Fin. Mkts. & Portfolio Mgmt. 1
(2021) (``Fahlenbrach study''). The study mentions that ``Entities
conducting ICOs have unproven business models and are most often in
the preproduct stage.''
\414\ See IPO Task Force, Rebuilding the IPO On-Ramp (Oct. 20,
2011).
---------------------------------------------------------------------------
Every offer and sale of securities, including covered investment
contracts, must be registered under Securities Act section 5 or
conducted pursuant to an exemption from section 5. Although registered
offerings provide issuers and investors alike with many benefits, such
as access to a large pool of investors, liquidity, and lower
information asymmetry, they also include costs (e.g., Commission filing
fees, legal and accounting fees, and costs associated with Exchange Act
reporting requirements) that can be disproportionately burdensome for
many startups and small businesses vis-a-vis the amount of capital that
they are seeking to raise. One survey concluded
[[Page 54561]]
that the average initial compliance cost associated with conducting an
initial public offering (``IPO'') (excluding underwriter fees) is $5.2
million, followed by ongoing compliance costs for issuers, once public,
averaging $2.0 million per year.\415\ Hence, for a small issuer, a
registered offering may not be economically feasible. Moreover, issuers
conducting registered offerings often pay underwriter fees, which are,
on average, approximately four to seven percent of the proceeds for
IPOs, approximately five percent for follow-on equity offerings, and
approximately one to one-and-a-half percent for public bond
issuances.\416\
---------------------------------------------------------------------------
\415\ See Rebuilding the IPO On-Ramp: Putting Emerging Companies
and the Job Market Back on the Road to Growth, U.S. Dep't Treas.
(Oct. 20, 2011), available at http://www.sec.gov/info/smallbus/acsec/rebuilding_the_ipo_on-ramp.pdf; Price Waterhouse Coopers (PwC)
Deals, Considering an IPO to Fuel Your Company's Future? Insight
into the Costs of Going Public and Being Public (Nov. 2017),
available at https://pwc.com/hu/hu/szolgaltatasok/konyvvizsgalat/szamviteli-tanacsadas/kiadvanyok/cost_of_an_ipo_2017.pdf.
\416\ See, e.g., Hsuan-Chi Chen & Jay R. Ritter, The Seven
Percent Solution, 55 J. Fin. 1105-31 (2000); Mark Abrahamson, et
al., Why Don't U.S. Issuers Demand European Fees for IPOs? 66 J.
Fin. 2055-82 (2011); Shane A. Corwin, The Determinants of
Underpricing for Seasoned Equity Offers, 58 J. Fin. 2249-79 (2003);
Lily Hua Fang, Investment Bank Reputation and the Price and Quality
of Underwriting Services, 60 J. Fin. 2729-61 (2005); Rongbing Huang
& Donghang Zhang, Managing Underwriters and the Marketing of
Seasoned Equity Offerings, 46 J. Fin. Quant. Analysis 141-70 (2011);
Stephen J. Brown, et al., Convertibles and Hedge Funds as
Distributors of Equity Exposure, 25 Rev. Fin. Studs. 3077-112
(2012).
---------------------------------------------------------------------------
As an alternative to raising capital through registered offerings,
issuers may instead offer and sell securities in reliance on an
exemption from Securities Act section 5. The Securities Act and the
rules promulgated thereunder contain a number of such exemptions.
Issuers can rely on current exemptions from registration under the
Securities Act, such as section 4(a)(2), Regulation D, Regulation
Crowdfunding, Regulation A, and the intrastate exemptions in section
3(a)(11) (as well as the related safe harbor in Rule 147) and Rule
147A. We note, however, that Regulation A is unlikely to be a viable
option for issuers that are considering covered investment contract
offerings. Covered investment contracts are not ``eligible securities''
under Regulation A.\417\ Thus, issuers may not offer or sell covered
investment contracts pursuant to Regulation A. We therefore do not
consider Regulation A as an alternative method of raising capital for
issuers of covered investment contracts.\418\
---------------------------------------------------------------------------
\417\ See supra note 249 and accompanying discussion.
\418\ Issuers could raise capital pursuant to Regulation A by
issuing ``eligible securities'' and separately using that capital to
fund crypto asset projects. Such a strategy, however, would forgo
the benefits and synergies of directly offering the crypto assets to
investors via covered investment contracts.
---------------------------------------------------------------------------
The statutory exemptions and those established by our rules include
a variety of offering limits, requirements, disclosure frameworks,
investor protections, and conditions. Some exemptions (e.g., Regulation
Crowdfunding and Rule 504 of Regulation D) limit the amount of
securities that may be offered or sold, while others (e.g., Rules
506(b) and (c) of Regulation D) allow issuers to offer and sell an
unlimited amount of securities. Some exemptions (e.g., offerings under
section 4(a)(2) and Rule 506(b) of Regulation D) limit the manner in
which the offering can be conducted, such as by prohibiting the use of
general solicitation or general advertising to solicit investors while
others (e.g., Regulation Crowdfunding and Rule 506(c) of Regulation D)
allow issuers to generally solicit and advertise subject to certain
restrictions. Some exemptions are available only to offers and/or sales
to persons within a single State or territory (e.g., section 3(a)(11)
of the Securities Act, as well as its related safe harbor in Rule 147,
and Rule 147A). One exemption (i.e., Rule 506(c) of Regulation D)
restricts sales to accredited investors and requires issuers to take
reasonable steps to verify such investors' status as accredited prior
to such sales.\419\ The eligibility criteria for many of the exemptions
prohibit certain types of issuers from relying on the exemption, such
as non-U.S. issuers, issuers subject to the reporting requirements of
the Exchange Act, investment companies, development stage or blank
check companies, or certain ``bad actors,'' with the exact type of
prohibitions varying from exemption to exemption. For example,
Regulation Crowdfunding is not available to non-U.S. issuers (except
Canadian issuers), blank check companies, Exchange Act reporting
companies, and investment companies (including business development
companies \420\).
---------------------------------------------------------------------------
\419\ Accredited investors are presumed to possess sufficient
financial sophistication and ability to sustain the risk of loss of
their investment or to fend for themselves to render the protections
of the Securities Act's registration process unnecessary. See
Regulation D Revisions; Exemption for Certain Employee Benefit
Plans, Release No. 33-6683 (Jan. 16, 1987) [52 FR 3015 (Jan. 30,
1987)].
\420\ See 15 U.S.C. 80a-2(a)(48) for the definition of business
development company.
---------------------------------------------------------------------------
In addition, some exemptions specify disclosures required to be
included in prescribed forms that must be filed with the Commission or
otherwise provided to all or a subset of prospective investors. For
example, Regulation Crowdfunding has broader disclosure requirements
compared to some other existing offering exemptions. Under Regulation
Crowdfunding, an issuer must file an offering statement at the onset of
an offering and provide company financial statements for a specified
period. Under certain circumstances, these financial statements must be
audited. In addition to the initial disclosures, issuers relying on
Regulation Crowdfunding must provide certain ongoing disclosures
through the duration of their offering, including periodic reports and,
at the culmination of the offering, a termination of reporting form. On
the other hand, Regulation D requires only an initial notice filing on
Form D with the Commission, which includes basic offering and issuer
information without any financial statements. Rule 506(b) of Regulation
D, however, requires issuers that are not subject to the reporting
requirements of Exchange Act section 13 or 15(d) to provide a
disclosure document to non-accredited investors (if any) with the kind
of information as would be required in Part II of Form 1-A (if the
issuer is eligible to use Regulation A) \421\ and the financial
statements required by Part F/S of Form 1-A of Regulation A, but there
are no periodic reporting requirements. Issuers relying on Securities
Act section 4(a)(2), section 3(a)(11) (as well as its related safe
harbor in Rule 147), or Rule 147A are not required to provide one-time
or ongoing disclosure.
---------------------------------------------------------------------------
\421\ See 17 CFR 230.502(b)(2)(i)(A). If an issuer is not
eligible to use Regulation A, it is required to provide the same
type of information that would be required by Part I of a
registration statement filed on a form that it is eligible to use.
---------------------------------------------------------------------------
Another characteristic of many of the existing offering exemptions
(e.g., offerings under Rule 506(b), Rule 506(c), and section 4(a)(2))
is that investors acquire restricted securities. Those investors,
therefore, may need to hold such securities for a specified period of
time without the possibility of trading them. For example, if a non-
affiliated investor relies on Rule 144 to resell its restricted
securities, the investor must wait a year (if the issuer is not an
Exchange Act reporting company) or six months (if the issuer is an
Exchange Act reporting company) before trading the securities.
Securities issued pursuant to Regulation Crowdfunding are not
restricted securities under Rule 144; however, they are subject to
resale restrictions within the first year of sale pursuant to 17 CFR
227.501.
Many of the aforementioned characteristics of existing offering
exemptions may significantly limit the ability of issuers of covered
investment
[[Page 54562]]
contracts to create economic incentives that encourage participation in
their networks and applications. For example, some of the offering
exemptions limit the type of investors that may purchase in the
offering or restrict the ability of purchasers to resell those
securities. This in turn may limit these issuers' ability to raise
capital to help achieve such participation and ultimately benefit from
network effects. Treating covered investment contracts as restricted
securities would likely slow down the diffusion of the underlying
crypto asset across potential users and other network participants,
thus impeding the issuer's ability to achieve network effects.
Additionally, State registration and qualification requirements (which
are not preempted under some existing exemptions, either with respect
to the primary offering of securities issued under the exemption,
secondary market transactions with respect to such securities, or both)
do not fit with the typically global (cross-states, or even cross-
country) nature of purchasers of covered investment contracts and the
underlying crypto assets. Further, existing offering exemptions often
rely on accredited investors for offering participation, thus
potentially restricting the pool of purchasers of covered investment
contracts and, therefore, the subject crypto assets. This could inhibit
the development of many networks or applications, which require broad
distribution of the related crypto asset among users who may be
anonymous,\422\ global, and retail.\423\ Lastly, some of the offering
exemptions require issuers to provide disclosures that may not be
relevant to investors in covered investment contract offerings. The
cost of preparing those disclosures may limit issuers' interest in
pursuing current exemptions.
---------------------------------------------------------------------------
\422\ Although a public observer can see and trace all
transactions of a blockchain address which is theoretically
associated with an investor, the public profile or any other private
information is hidden. See, e.g., Dimitri Boreiko & Dimche Risteski,
Serial and Large Investors in Initial Coin Offerings, 57 Small Bus
Econ, 1053 (2021).
\423\ For example, the Fahlenbrach study finds that the average
ICO has 4,700 investors, and the median ICO investor invests
approximately $1,200. See supra note 430.
\424\ Division of Corporation Finance, Office of Small Business
Policy, Overview of Capital-Raising Exemptions, available at https://sec.gov/files/2024-ospb-overview-capital-raising-exemptions-table-2.pdf.
---------------------------------------------------------------------------
Table 1 summarizes some of the characteristics of the most commonly
used exemptions from registration.\424\
BILLING CODE 8011-01-P
[[Page 54563]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.040
---------------------------------------------------------------------------
\425\ 346 U.S. 119, 126 (1953).
---------------------------------------------------------------------------
[[Page 54564]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.041
BILLING CODE 8011-01-C
Finally, businesses may also seek to rely on private debt
financing. While equity accounts for a significant proportion of the
total capital of a typical small business, other sources of capital for
small businesses include loans from commercial banks, finance companies
and other financial institutions, and trade credit.\426\ Borrowing can
be relatively costly for
[[Page 54565]]
many early-stage issuers as they may have low revenues, irregular cash-
flow projections, insufficient assets to offer as collateral, and high
external monitoring costs; therefore, they may be deemed riskier and
may be unable to secure the most favorable loan terms.\427\ Financial
institutions generally require such small business borrowers to provide
collateral or a guarantee by owners,\428\ which some issuers may be
unable or reluctant to provide. As mentioned above, it is likely that
most issuers of covered investment contracts would be small, thus for
them borrowing could be very costly.
---------------------------------------------------------------------------
\426\ See Allen N. Berger & Gregory F. Udell, Small Business
Credit Availability and Relationship Lending: The Importance of Bank
Organisational Structure, 112 Econ. J. F32-F53 (Feb. 2002). In this
study, equity accounted for approximately half of the total capital,
including approximately 31 percent (45 percent for the smallest
firms--that is, those, with less than $1 million in revenues or less
than 20 employees) attributed to the principal owner. The remainder
came from debt financing, with about one quarter accounted for by
loans from commercial banks, finance companies and other financial
institutions, and another 16 percent comprised of trade credit. The
study was conducted based on the 1993 edition of the Federal Reserve
Board's Survey of Small Business Finances, which collects
information on small businesses (fewer than 500 employees) in the
United States.
\427\ See Alicia M. Robb & David T. Robinson, The Capital
Structure Decisions of New Firms, 27 Rev. Fin. Studs. 153, 153-79
(Jan. 2014).
\428\ Approximately 92 percent of all small business debt to
financial institutions is secured, and owners of the firm guarantee
about 52 percent of that debt. See Allen N. Berger & Gregory F.
Udell, Relationship Lending and Lines of Credit in Small Firm
Finance, 68 J. Bus. 351, 351-81 (1995). Some studies of small
business lending also document the creation of local captive markets
with higher borrowing costs for small, opaque firms as a result of
strategic use of soft information by local lenders. See Sumit
Agarwal & Robert Hauswald, Distance and Private Information in
Lending, 23 Rev. Fin. Studs. 2757, 2757-88 (Apr. 2010).
---------------------------------------------------------------------------
2. Affected Issuers
The affected issuers consist of any issuer that has decided or may
decide to offer and sell covered investment contracts. Any issuer
meeting the eligibility criteria \429\ could use the exemptions set
forth in the proposed rules to offer and sell covered investment
contracts and/or rely on the investment contract safe harbor. We do not
have reliable data or information that would allow us to estimate the
number of issuers that would be able to rely on the proposed rules or
that are likely to use them in the future. In light of this limitation,
to inform our understanding of the scope of affected issuers, we look
to available data about issuers that have made offerings involving
crypto assets (which we refer to as ``crypto asset-related offerings'')
in the past. In particular, we analyzed information on each of the
number of ICOs that were undertaken before the release of the DAO
Report,\430\ the number of crypto assets that are listed/traded on
secondary crypto markets, and past exempt offerings that may have a
connection to the crypto asset market. While our analysis below
describes certain sets of potentially affected parties and estimates
their numbers, we also recognize that there could be issuers that have
not made crypto asset-related offerings in the past that may choose to
do so in the future that are not represented in the estimates below.
For the reason noted above, the challenges of conducting a crypto
asset-related offering under the current offering exemptions may limit
offerings in the United States. Our analysis provides some information
about the approximate number of issuers that may be able to rely on the
proposed rules. The number of affected issuers, however, is likely to
be higher than the estimates we provide.
---------------------------------------------------------------------------
\429\ Issuers could be public or private, from the crypto asset
industry or otherwise. The proposed rules would be applicable to any
issuer, regardless of whether the issuer has operations that are
unrelated to the crypto asset industry or whether, prior to engaging
in the covered investment contract offering, the issuer was not
engaged in operations related to the crypto asset industry.
\430\ There is empirical evidence in recent economic studies
that the number of ICOs has declined dramatically after 2018. See,
e.g., Evgeny Lyandres, et al., ICO Success and Post-ICO Performance,
68 Mgmt. Sci. 8658 (Feb. 2022) (``Lyandres Study''); Tatyana
Davydiuk, et al., De-Crypto-ing Signals in Initial Coin Offerings:
Evidence of Rational Token Retention, 69 Mgmt. Sci. 6584 (Nov. 2023)
(``Davydiuk Study''). For example, the Lyandres Study notes that
``[p]ossibly due to regulatory uncertainty, ICOs became less
frequent in the end of 2018 and in 2019, being partially replaced by
`Security Token Offerings' (STOs), which adhere to securities
regulations, and `Initial Exchange Offerings' (IEOs), in which an
issuer combines raising capital with listing the token on a crypto
exchange.'' The Davydiuk Study mentions that ``[s]ince 2019,
industry reports show that ICO activity has declined, although the
number of STOs and IEOs has been growing.''
---------------------------------------------------------------------------
The proposed rules could incentivize some covered investment
contract issuers that have used, or are currently using, existing
offering exemptions to switch to the proposed startup exemption and/or
the proposed fundraising exemption if they provide a cheaper way to
raise capital. Further, the proposed rules could incentivize other
covered investment contract issuers that have not pursued an offering
under existing offering exemptions, or that pursued or are pursuing an
offering abroad, to consider an offering in reliance on the proposed
startup exemption and/or the proposed fundraising exemption.
Importantly, to the extent the proposed rules help to bridge a gap in
capital formation for prospective covered investment contract issuers,
we expect that the proposed rules could draw new covered investment
contract issuers to the market that have not, to date, relied on
existing offering exemptions. Thus, the number of issuers utilizing the
new provisions is likely to be higher than the estimates in this
section.
We also expect that many issuers that rely on the proposed
exemptions, or that in the past issued covered investment contracts,
would eventually seek to satisfy the investment contract safe harbor to
obtain certainty that their crypto assets no longer are subject to the
provisions of the Federal securities laws. Some affected issuers could,
in fact, rely solely on the proposed investment contract safe
harbor.\431\ Thus, our analysis of prior exempt offerings, which is
intended to approximate only the number of issuers that would rely on
the proposed new exemptions, is likely to underestimate the number of
potential affected issuers.
---------------------------------------------------------------------------
\431\ See section II.D.
---------------------------------------------------------------------------
We first analyzed the number of ICOs that were undertaken before
the release of the DAO Report.\432\ ICOs were the most popular capital
raising offerings for crypto asset issuers that were startups or in
early stages of development.\433\ One study observed that there were
5,644 ICOs globally between January 1, 2016, and December 31,
2018.\434\ The study found that about 17 percent of the ICO sample used
in the analysis had U.S.-based development teams. Based on that, we
estimate that about 960 (i.e., 17 percent) of the 5,644 ICOs from 2016
through 2018 had U.S.-based teams.\435\ We caveat that the peak of ICO
activity was almost seven years ago, and the current number of
potentially affected crypto asset issuers may differ significantly.
Another study reports a similar total number of ICOs, 5,376 ICOs, from
2013 through 2019, with 13 percent of those ICOs (i.e., 699 ICOs)
located in the United States.\436\ A more recent study
[[Page 54566]]
estimates the number of U.S. ICOs as of July 2025 to be 248, out of
1,096 ICOs (i.e., 23 percent) launched globally.\437\
---------------------------------------------------------------------------
\432\ See supra note 430.
\433\ Some crypto asset issuers have undertaken IEOs. Others
have used Simple Agreements for Future Tokens (``SAFTs''). SAFT
issuers enter into an agreement with an investor for the future
delivery of tokens once a platform is developed and becomes
functional. See Howell, et al., supra note 401.
\434\ See Davydiuk Study, supra note 430.
\435\ We note that the location of the development team which is
used in the study may not meet the issuer eligibility requirements
in the fundraising exemption (that the issuer is an entity organized
in the United States and with a majority of its executive officers
or directors being U.S. citizens or residents, more than 50 percent
of its assets located in the United States, and its business is
administered principally in the United States.) Nonetheless, given
the data limitations we face, we use this study to inform our
estimates.
\436\ See Lyandres Study, supra note 430. In the empirical
analysis, the study restricts the analysis to a subsample of 5,376
ICOs for which there is data on the number of tokens issued for
sale, the amount raised in the ICO, or both. This is done in an
attempt to eliminate incomplete ICOs, which are those that are
halted before offering tokens to investors, as opposed to completed
but unsuccessful ICOs (that is, those that fail to raise money),
which are kept in the sample. Also, classification of ICOs in this
study may not align identically with the issuer eligibility
requirements in the fundraising exemption (that the issuer is an
entity organized in the United States and with a majority of its
executive officers or directors being U.S. citizens or residents,
more than 50 percent of its assets located in the United States, and
its business is administered principally in the United States).
\437\ Barry Elad & Kathleen Kinder, ICO Market Statistics 2025:
Funding, Failures & Future Outlook, CoinLaw (July 11, 2025),
available at https://coinlaw.io/ico-market-statistics/.
---------------------------------------------------------------------------
Our second analysis considered the number of crypto assets that are
listed/traded on secondary crypto asset markets. The creators of those
crypto assets have presumably sold the assets to acquirers and are
working to develop, or have completed or abandoned development of, the
associated blockchain network or application. Using data from
CoinMarketCap,\438\ we have identified 9,746 crypto assets that are
currently listed or traded on various crypto asset exchanges globally.
Assuming that each crypto asset is developed by a unique creator, there
would be 9,746 creators of crypto assets from 2013 through 2024. Figure
1 lists the number of crypto assets that listed or started trading on
one or more exchanges in any given calendar year from 2013 through
2024. As Figure 1 shows, the number of crypto assets that are added for
listing or trading on a secondary exchange has dramatically increased
over time, peaking in 2021 and then again in 2024. This data does not
identify how many of these crypto assets have U.S.-based development
teams, which means that the numbers in Figure 1 could overstate the
number of issuers that may use the fundraising exemption. The data also
does not indicate how many crypto assets were removed from secondary
exchanges each year, thus introducing potential downward selection
bias. Because of this potential selection bias, the total number of
9,746 crypto assets likely understates the true number of crypto assets
that were listed/traded across the world on secondary trading platforms
(``crypto exchanges'') from 2010 through 2024.
---------------------------------------------------------------------------
\438\ Crypto Market Overview, CoinMarketCap, available at
https://coinmarketcap.com/charts/ (last visited June 6, 2025). The
data are available from 2013.
[GRAPHIC] [TIFF OMITTED] TP21AU26.042
Lastly, we analyzed available data on the potential number of
issuers that conducted crypto asset-related offerings under Regulation
D, Regulation A,\439\ or Regulation Crowdfunding offerings. This
analysis is subject to limitations and assumptions, as we explain in
detail below. Our findings suggest that, for the period from 2016 to
2024, 581 issuers made crypto asset-related offerings under Regulation
D, 14 issuers made crypto asset-related offerings under Regulation A,
and 41 issuers made crypto asset-related offerings under Regulation
Crowdfunding. Thus, the data suggest that a total of 636 issuers made
crypto asset-related offerings in the United States using at least one
of the existing offering exemptions and thus would be potentially
affected parties.
---------------------------------------------------------------------------
\439\ Issuers conducting crypto asset-related offerings under
Regulation A were identified based on issuances where the offering
circular and/or exhibits reference terms in Form 1-A filings that
connect to the crypto assets market. The securities that the issuers
were offering and selling, therefore, were not necessarily covered
investment contracts. Even though issuers are not able to offer or
sell covered investment contracts pursuant to Regulation A, it is
still informative to identify issuers that have crypto asset-related
characteristics and therefore may be more inclined to offer and sell
covered investment contracts under a different exemption (e.g., the
proposed startup exemption or fundraising exemption).
---------------------------------------------------------------------------
[[Page 54567]]
a. Issuers Conducting Crypto Asset Related Offerings Under Regulation D
We analyzed Form D and Form D/A filings from 2009 through 2024
using certain criteria to identify likely issuers of crypto asset-
related offerings.\440\ Over this period, 581 issuers undertook 682 of
crypto asset-related offerings under Regulation D, with the first
offerings appearing in 2017. Figure 2 shows annual data on the number
of crypto asset-related offerings under Regulation D from 2017 through
2024.\441\ The number of offerings was highest in 2018 (282 offerings),
subsequently declined, and has trended upward in recent years, with 75
offerings conducted in 2024 as compared to 51 in 2023.
---------------------------------------------------------------------------
\440\ We identify crypto asset-related offerings by checking if
in Form D the issuer checked the ``Other'' box under Item 9
(``Type(s) of Securities Offered'') and mentioned the word ``Token''
and variations of it (e.g., tokens, tokenization, etc.) or the word
``Crypto'' and variations of it (e.g., cryptocurrency, cryptoasset,
etc.). This analysis includes Regulation D offerings for all
issuers, including pooled investment funds. Data are obtained from
Form D filings. The amount raised is based on ``Total amount sold''
in initial and amended Form D filings. Incremental proceeds reported
in amended filings are recorded in the year of the amended filing.
We believe reported data is likely an underestimate of the amount
raised because (1) Rule 503 of Regulation D requires issuers to file
a Form D no later than 15 days after the first sale of securities,
but a failure to do so does not invalidate the exemption; so, some
Regulation D issuers may fail to file a Form, and (2) there is no
requirement to file a Form D at completion of the offering, or to
file an amendment to reflect additional amounts offered if the
aggregate offering amount does not exceed the original offering size
by more than ten percent (so, amounts reported may be lower than
total amounts sold). While failure to file Form D does not affect
the exempt offering, it could have other consequences, including,
under Rule 507, the potential loss of ability to rely upon
Regulation D in the future.
\441\ The first Regulation D offerings by crypto asset issuers
appear in 2017, hence the period of coverage in Figure 2.
[GRAPHIC] [TIFF OMITTED] TP21AU26.043
Table 2 provides some summary statistics of issuers that conducted
crypto asset-related offerings under Regulation D. These issuers raised
approximately $4.7 billion from 2017 through 2024. Unlike Regulation D
offerings by non-crypto asset issuers, issuers conducting crypto asset-
related offerings tend to rely more frequently on Rule 506(c) rather
than Rule 506(b).\442\ The average offering raised approximately $7.4
million, with the median amount much smaller ($1.2 million).
Additionally, the crypto asset-related offerings involved approximately
67 investors on average, and almost no non-accredited investors. The
general absence of non-accredited investors is not surprising given the
primary reliance on Rule 506(c) which allows sales only to accredited
investors, while Rule 506(b) allows for up to 30 non-accredited
investors.
---------------------------------------------------------------------------
\442\ See Scott Bauguess et al., Capital Raising in the U.S.: An
Analysis of the Market for Unregistered Securities Offerings, 2009-
2017 (SEC, DERA White Paper, August 2018), available at https://sec.gov/files/dera-white-paper_regulation-d_082018.pdf.
---------------------------------------------------------------------------
[[Page 54568]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.044
b. Issuers Conducting Crypto Asset-Related Offerings Under Regulation A
We analyzed Form 1-A filings over the period from June 19, 2015 to
December 31, 2024 using certain criteria to identify likely issuers of
crypto asset-related offerings under Regulation A (i.e., issuances
where the offering circular and/or exhibits reference terms connected
to the crypto asset market).\443\ From 2015 through 2024, there were 14
issuers that conducted qualified crypto asset-related offerings under
Regulation A. As seen in Table 3, these issuers sought to raise a total
of $546 million during the period under consideration. The average
amount sought was approximately $34 million, and most of the offerings
were Tier 2 offerings.
---------------------------------------------------------------------------
\443\ The sample starts on June 19, 2015, the date when the 2015
Regulation A amendments went into effect. ``Crypto asset-related''
offerings are identified based on keyword searches (``token(s)'',
``coin(s)'', ``crypto(s)'', ``blockchain(s)'', ``cryptocurrency'',
and ``digital assets'') of issuer legal names on EDGAR and full text
of offering circular filings and exhibits in data provided by
Intelligize, as well as assignment to the Division of Corporation
Finance's Office of Crypto Assets disclosure review subject to hand-
checks to eliminate false matches. Note that many of the offerings
do not necessarily involve issuance of crypto assets that are
subject to an investment contract or are themselves digital
securities (as discussed in the 2026 Interpretation), but the
offering circular may, for example, reference blockchain, mining,
utility tokens, or other digital asset/crypto ecosystem activities
as part of the issuer's business.
---------------------------------------------------------------------------
[[Page 54569]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.045
Table 4 reports the actual amounts raised for the qualified crypto
asset-related offerings under Regulation A. There were nine issuers
that raised a total of $119 million across 10 offerings, with an
average amount raised per offering of about $11.9 million. This is
almost the same as the average amount raised per offering across all
Regulation A offerings, which is $11.5 million.\445\
---------------------------------------------------------------------------
\444\ The data period is from June 19, 2015 to Dec. 31, 2024.
Capital reported raised is based on information disclosed by
companies in Forms 1-Z, 1-K, 1-SA, 1-U, and other filings, and
presented as of that reporting date. Estimates represent a lower
bound on the amounts raised and are affected by the timing of
proceeds reporting by the issuer. As most offerings are conducted on
a continuous basis, some time may elapse between offering initiation
and completion or termination. After that issuers have 30 days to
file Form 1-Z (however, Tier 2 issuers may instead report sales in
their first annual report after termination or completion of an
offering). Tier 2 issuers may report proceeds in ongoing offerings
in periodic reports. Such proceeds are likely to be reported at a
future date. Issuers that report proceeds of zero are excluded from
the count. If an issuer reports proceeds both from a Tier 1 and a
Tier 2 offering, that issuer is counted twice (once under Tier 1 and
once under Tier 2). Information collection is also affected by
variance across filers in disclosure and tagging practices with
respect to proceeds reporting.
\445\ See supra note 288.
[GRAPHIC] [TIFF OMITTED] TP21AU26.046
Table 5 provides some characteristics of the issuers of qualified
crypto asset-related offerings under Regulation A. The average crypto
asset issuer using Regulation A was small, with average total assets of
approximately $4.8 million and an average of 13 employees. However,
compared to the average Regulation A issuer over the same period,
crypto asset issuers relying on Regulation A had larger revenues ($4.9
million vs. $1.9 million), were more established (10.1 years vs. 6.7
years since incorporation), and were more likely to have generated some
revenue at the time they made the Regulation A offering.
---------------------------------------------------------------------------
\446\ Capital reported raised is based on information disclosed
by companies in Forms 1-Z, 1-K, 1-SA, 1-U, and other filings for the
period from June 19, 2015, to Dec. 31, 2024. Estimates represent a
lower bound on the amounts raised and are affected by the timing of
proceeds reporting by the issuer. Instances of zero proceeds are
excluded. Information collection is affected by variance across
filers in disclosure and tagging practices with respect to proceeds
reporting.
---------------------------------------------------------------------------
[[Page 54570]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.047
c. Issuers Conducting Crypto Asset-Related Offerings Under Regulation
Crowdfunding
---------------------------------------------------------------------------
\447\ Statistics in this table are based on offerings qualified
as of Dec. 31, 2024. The information on offering and issuer
characteristics is based on Part I of Form 1-A of Regulation A
offering statements or the latest amendment qualified during the
sample period. For ease of interpretation, in the case of variables
that take on a value of 0 or 1, medians are not reported and the
mean column shows the percentage of the offerings that take on the
value of 1.
---------------------------------------------------------------------------
For Regulation Crowdfunding, we analyzed reported offering proceeds
(i.e., aggregate amount, average amount, median amount, and number of
offerings) based on data available in reports on Form C-U from 2016
through 2024. From 2016 through 2024, 41 issuers conducted 42 crypto
asset-related offerings under Regulation Crowdfunding.\448\ The total
amount raised was approximately $13.6 million, and the average amount
raised per offering was $545,300.
---------------------------------------------------------------------------
\448\ Data comes from the XML portion of Forms C and C-U and
amendments to them filed through Dec. 31, 2024. When we refer to
offerings, we refer to initiated offerings that have not been
withdrawn, unless specified otherwise. When discussing proceeds, we
refer to offerings that have reported proceeds on Form C-U.
Offerings with Forms C-U without proceeds information are treated as
not having proceeds. We identify crypto offerings by checking if in
Form C the issuer described the securities issued in the ``Security
Other Description'' field as ``SAFT'' or ``Token.''
---------------------------------------------------------------------------
[[Page 54571]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.048
Table 7 presents some characteristics of the issuers that conducted
crypto asset-related offerings under Regulation Crowdfunding. Compared
to the average Regulation Crowdfunding issuer, the issuers in crypto
asset-related offerings tend to be much younger (1.3 years vs. 3.7
years) and much smaller in terms of assets ($407,000 vs. $736,000) and
revenues ($21,000 vs. $740,000).\449\ They also had less cash on hand
and have raised less debt financing.
---------------------------------------------------------------------------
\449\ See Angela Huang & Vladimir Ivanov, Analysis of
Crowdfunding Under the JOBS Act (SEC, DERA White Paper, May 2025),
available at https://sec.gov/files/dera-reg-cf-2505.pdf.
---------------------------------------------------------------------------
[[Page 54572]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.049
As an important caveat, due to limitations of the data, we are not
able to determine which of the offerings relying on the existing
exemptions would have involved securities that met the specific
definition of covered investment contracts in the proposed rules.
3. Disclosures Provided by Current Issuers of Crypto Asset-Related
Offerings
Historically, most ICOs included a whitepaper that provided certain
information to potential investors. One study found that the items
commonly disclosed in the whitepapers were similar to typical
disclosure topics in IPO prospectuses, such as business, management,
incentive structure and governance, and offering-related
information.\450\ Using an international sample of 2,113 ICOs from
March 2014 through October 2018, the study found that almost all
whitepapers provided at least some narrative description of the
venture's primary business purpose; 81 percent also disclosed a roadmap
or timeline for the development of the product or service, 71 percent
provided information on the identities and professional biographies of
team members, and 66 percent disclosed information on their incentive
structure (i.e., allocation of tokens to insiders). Another study also
found that blockchain application was the most discussed topic in ICO
whitepapers, followed by information on the network's development and
discussions regarding data management and the application of artificial
intelligence tools.\451\ Apart from the emphasis on blockchain
technology, this study observed that ICO whitepapers distinctly
entailed substantial discussions on decentralization and network
building. Topics related to legal disclaimers, risk management, and
risk disclosures received comparatively less discussion.
---------------------------------------------------------------------------
\450\ See Thomas Bourveau et al., The Role of Disclosure and
Information Intermediaries in an Unregulated Capital Market:
Evidence from Initial Coin Offerings, 60 J. Acct. Rsch. 129 (2022).
The authors state ``[d]espite a rigorous collection efforts process
for both successful and failed ICOs,'' they ``could only collect
white papers for approximately 70 percent of the attempted ICOs,''
and that ``[d]ue to the difficulties [they] encountered in locating
a white paper that could be downloaded even when one was referenced
in various data sources, [they] are certain that many more white
papers were released than [they] were able to collect [ ]'' in their
sample.
\451\ See James Thewissen et al., Unpacking the Black Box of ICO
White Papers: A Topic Modeling Approach, 75 J. Corp. Fin. 1 (2022).
---------------------------------------------------------------------------
Some ICO ventures also employ governance and incentive alignment
practices, such as vesting and lock-ups for insiders' tokens, similar
to those in the IPO market. The first study referenced above \452\
found that 26 percent of those whitepapers contained information on the
vesting of insiders' tokens, with vesting periods ranging from three to
12 months after the ICO and 65 percent of whitepapers
[[Page 54573]]
contained information about the expected use of proceeds from the ICO.
Additionally, the study found that only four percent of whitepapers
mentioned venture-specific risk factors, and less than two percent
provided any financial information or projections. According to the
study, this could be partly because ICO ventures are smaller and at an
earlier stage than, for example, companies that pursue IPOs. Finally,
the study found that six percent of whitepapers were purely technical
documents that contained no marketing information.
---------------------------------------------------------------------------
\452\ See supra note 450.
---------------------------------------------------------------------------
ICO ventures also disclosed information through sources other than
whitepapers. The same study found that 53 percent of the ICO ventures
in the sample released the technical source code for their software
product or token smart contract through online code repositories (e.g.,
GitHub), which allowed investors and customers to conduct technical due
diligence and assess competitive differentiation; 63 percent released a
video marketing presentation; and 97 percent were active on social
media platforms, such as Facebook, X, and Medium. The videos typically
presented the ICO venture's main business proposition. The social media
platforms often were used to disseminate real-time information about
the ICO's progress, communicate with potential investors, or to self-
publish articles.
4. Affected Financial Intermediaries
The proposed rulemaking may also affect financial intermediaries
that are involved or may become involved in the placement and quotation
of crypto assets subject to the covered investment contracts.
Currently, there are many crypto exchanges that quote and allow for
trading of various crypto assets. For example, based on data from
CoinMarketCap, there are 255 crypto asset exchanges providing such
quotes and trades. Further, financial intermediaries involved in the
offers and sales of covered investment contracts (as opposed to those
``making'' the market on crypto asset exchanges) may be affected by the
rulemaking. We do not have a reliable estimate of how many current
offerings of covered investment contracts involve financial
intermediaries. From the 682 crypto asset-related offerings that were
conducted under Regulation D from 2017 through 2024, 56 (approximately
eight percent) reported using the services of placement agents and/or
finders.\453\
---------------------------------------------------------------------------
\453\ The statistics on Regulation D offerings by crypto asset
issuers are based on analysis of Form D and Form D/A filings during
2017-2024. To identify the presence of an intermediary in an
offering, we identify those offerings that report paying a
commission and/or finder's fee.
---------------------------------------------------------------------------
Additionally, financial intermediaries are used in certain of the
other types of offerings, including registered offerings and certain
exempt offerings. To the extent that the proposed rules would impact
the number and overall amount of capital raised in other types of
offerings, financial intermediaries participating in such offerings may
be affected. For example, in registered offerings, underwriters are
frequently used to identify potential investors and are primarily
responsible for facilitating a successful distribution of the
securities offered. While intermediaries are used less frequently in
Regulation D offerings, they play a role in some offerings. For
example, from 2009 through 2017 approximately 20 percent of Regulation
D offerings by non-fund issuers used an intermediary.\454\ Similarly,
from 2015 through 2024 approximately 51 percent of Regulation A
offerings involved the use of intermediaries.\455\ Regulation
Crowdfunding offerings involve intermediaries by statutory requirement.
We do not have information on whether and how often any of the other
exempt offerings use intermediaries.
---------------------------------------------------------------------------
\454\ See supra note 442.
\455\ See supra note 288.
---------------------------------------------------------------------------
B. Economic Effects of Individual Provisions
The proposed rules would likely generate economic effects for
issuers and investors.\456\ We discuss below broad economic
considerations associated with the proposed rules and analyze in the
subsequent sections the benefits and costs of the proposed rules,
including their effects on efficiency, competition, and capital
formation.
---------------------------------------------------------------------------
\456\ For purposes of measuring the effects of the proposed
rules, this analysis assumes that market participants are compliant
with existing applicable Commission rules. To the extent that some
entities engaged in activities involving offerings of covered
investment contracts are not, but should be, compliant with existing
offering frameworks, they may derive benefits from coming into
compliance with and incur additional costs to comply with existing
rules and registration obligations that are not discussed in this
analysis and are distinct from the benefits and costs associated
with the proposed rules. For such entities, we expect the benefits
and costs specifically associated with the proposed rules to be the
same as those described below as applicable. Effects on efficiency,
competition, and capital formation may differ from the discussion in
this analysis to the extent impacted entities do not currently
comply with existing applicable Commission rules.
---------------------------------------------------------------------------
The proposed rules would create new exemptions for covered
investment contracts under the Federal securities laws. Issuers'
ability to broadly and timely disseminate crypto assets and raise
capital to finance economic incentives are critical for the development
of their crypto networks or applications. Studies have shown that
developers of crypto projects significantly benefit from making their
products/services available to those who naturally engage with new
technologies at an early stage of development, also known as early
adopters.\457\ Delays that discourage use by early adopters tend to
undermine broader diffusion among later adopters. Facilitating the
ability of developers to raise capital and grow the functionality and
user adoption of their crypto projects can enhance their ability to
innovate, succeed, and deliver value to their users and investors. The
proposed startup exemption would exempt from Securities Act
registration requirements smaller offerings of covered investment
contracts that may incentivize user activity and support the growth,
functionality, and usage of the associated crypto network or associated
crypto application. Issuers needing larger amounts of capital would
have the option to rely on the proposed fundraising exemption to raise
up to $75 million in a 12-month period. Further, the proposed
investment contract safe harbor could provide issuers and investors
with greater certainty as to when a crypto asset is no longer subject
to an investment contract.
---------------------------------------------------------------------------
\457\ See Christian Catalini & Catherine Tucker, When Early
Adopters Don't Adopt, 357 Sci. 135 (July 2017).
---------------------------------------------------------------------------
The impact of the proposed rules would, in part, depend on whether
issuers elect to rely on the proposed exemptions for capital formation,
either in place of other capital raising methods or where they cannot
raise capital otherwise. The startup exemption and the fundraising
exemption would be tailored to covered investment contracts and have
different benefits and costs than other capital-raising methods. We
note some differences here and analyze them in the sections below.
Compared to a registered offering which has no limitation on the
aggregate offering amount and can offer a degree of liquidity that is
generally not available for securities issued in exempt offerings, the
proposed exemptions should allow issuers to raise capital, up to
certain limits, at a lower cost.\458\ Compared to Rule 506(b) and Rule
506(c) of Regulation D,\459\ the proposed
[[Page 54574]]
exemptions would have offering amount limits and, in some cases, more
extensive disclosure requirements, but issuers would be able to sell
securities to an unlimited number of non-accredited investors,\460\ and
the securities sold under the proposed exemptions would not be
restricted securities for purposes of the Federal securities laws.
Also, compared to Regulation Crowdfunding, the proposed exemptions
would not require the use of an intermediary, would allow for the offer
and sale of larger amounts under the fundraising exemption, and the
securities sold under the proposed exemptions would not be subject to
restrictions on resale. Accordingly, an issuer's ability under the
proposed exemptions to broadly solicit investors at a lower cost and
offer and sell covered investment contracts not subject to restrictions
on resale should enhance its ability to raise capital as well as the
liquidity of its securities. This could in turn facilitate broad
participation in a secondary market for these securities and help boost
the adoption and use of the issuer's subject crypto asset, including as
a medium of exchange or consumption.\461\
---------------------------------------------------------------------------
\458\ Issuance costs associated with small registered public
offerings are generally a significant percentage of proceeds, and
issuers in registered offerings must bear the costs arising from
ongoing disclosure requirements under the Exchange Act. See supra
section IV.A.1.
\459\ As we explained in section IV.A above, available data
suggest that crypto asset issuers have frequently relied on Rule
506(c) of Regulation D for capital raising, and such offerings are
limited to accredited investors. Rule 506(b) offerings permit non-
accredited investors so long as the information disclosure
requirements are satisfied.
\460\ Under the proposed fundraising exemption, if the purchaser
is not an accredited investor as defined in Rule 501 of Regulation
D, the aggregate purchase price to be paid by the purchaser cannot
exceed 10 percent of the greater of the purchaser's annual income or
net worth (or in the case of non-natural persons, the greater of
revenue or net assets for the most recently completed fiscal year).
See proposed 17 CFR 228.300(c)(2)(i)(C).
\461\ See Christian Catalini & Joshua S. Gans, Financing
Ventures with Fungible Tokens, (working paper June 25, 2025),
available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3137213 (retrieved from SSRN Elsevier
database) (stating that ``early users who receive or purchase
[crypto assets] obtain both consumption value and a stake in future
network growth, generating demand-side externalities'').
---------------------------------------------------------------------------
Also, the impact of the proposed rules would depend on the extent
to which new investor capital is attracted to covered investment
contracts or investors reallocate existing capital among various types
of offerings. The demand for covered investment contracts offered under
the proposed rules would depend on the characteristics of these
contracts, such as the utility of the subject crypto asset, its
liquidity and security, and possibly its expected risk and return,
including relative to what buyers could obtain from other investment
opportunities. For example, some buyers of covered investment contracts
may also want to hold a token to be used in a particular ecosystem, an
option that may not be available in a traditional securities offering
of equity or debt. It is also possible that covered investment
contracts may attract investors that are interested in holding covered
investment contracts for diversification purposes, as these contracts
may provide exposure to economic risks that differ from traditional
securities. Because they involve various types of non-security crypto
assets, covered investment contracts may have different risk-return
profiles than more traditional securities like equity and debt.\462\
---------------------------------------------------------------------------
\462\ There is some empirical evidence from ICOs that at least
some ICO investors view investments in underlying crypto assets as
speculative investments. For example, the Fahlenbrach study finds
that the typical ICO investor ``sells a substantial fraction of his
tokes shortly following the ICO, when the product of the company is
not yet developed, indicating that he is more interested in
financial gain than the underlying product.'' See supra note 430.
---------------------------------------------------------------------------
We estimate the annualized monetized costs of the proposed rules
for all affected issuers would be approximately $42,766,883 per year
over 10 years, using real discount rates of both three percent and
seven percent.\463\ This annualized cost estimate includes only those
monetized costs estimated below and thus does not encompass all of the
proposed rules' costs. In addition, the annualized monetized cost
estimate assumes a fixed number of offerings each year, based on the
estimates provided in section V, which are likely to change over
time.\464\ The estimate would correspondingly increase or decrease with
the changes in the number of offerings under Regulation Crypto Assets
each year. Due to lack of data, we are unable to estimate annualized
monetized benefits associated with the proposed rules.
---------------------------------------------------------------------------
\463\ We estimate annualized monetized costs consistent with the
requirements of Executive Order 12866. See infra note 571 and
accompanying text. For each discount rate, the annualized monetized
costs represent the constant annual stream of costs whose present
value over a 10-year horizon equates to the corresponding present
value of monetized costs for all affected issuers over the same
horizon. For detailed explanations and calculations, see infra
section VI.
\464\ For an explanation of the basis for the estimate of the
number of annual offerings used in this analysis, see infra section
V.B. For explanation of additional assumptions and calculations, see
infra sections V & VI.
---------------------------------------------------------------------------
We analyze below the likely benefits and costs of the individual
provisions of the proposed rules for investors and the issuers that
elect to rely upon them. The estimates of monetized costs below are not
discounted.
1. Benefits and Costs of Proposed Regulation Crypto Assets
As mentioned above, \465\ covered investment contracts have unique
features that are difficult to accommodate within the existing exempt
offering framework. Because of the nature of the technology, it is
typically impractical to limit the sale of the underlying crypto assets
to accredited investors or to persons in one geographic location,
making it difficult to meet investor-based eligibility requirements.
Such contracts often arise in the context of developers distributing
crypto assets and raising capital to fund the development of the
associated crypto networks or applications. Additionally, the
tradability and liquidity of the covered investment contracts, and thus
of the subject crypto assets, are often important for providing
incentives for the purchasers of these contracts to participate and
provide services that bolster the development of the associated crypto
networks or applications.
---------------------------------------------------------------------------
\465\ See discussion in section I.A.
---------------------------------------------------------------------------
The proposed rules would address the shortcomings of the existing
exempt offerings with respect to these unique features of covered
investment contracts. The proposed rules, by allowing an unlimited
number of non-accredited investors to participate in offerings of
covered investment contracts and preempting the State registration and
qualification requirements, would enable issuers to broaden their
participant base, thus making it easier to achieve network effects. The
proposed rules would also allow for the issue and distribution of
unrestricted covered investment contracts, thus improving their
liquidity and, as a result, the liquidity of the subject crypto assets.
This would allow for faster diffusion of the subject crypto assets
across potential users and network participants, thereby bolstering an
issuer's ability to achieve network effects. Also, the proposed rules,
by allowing issuers to raise capital via the sale of covered investment
contracts, would allow issuers to use this capital to provide
incentives to the various participants in their associated crypto
networks or associated crypto applications, thus incentivizing the
development and utilization of these networks or applications.
The proposed Regulation Crypto Assets would provide important
benefits to issuers and investors. The tailored principles-based
disclosure requirements that issuers would be required to satisfy under
the startup
[[Page 54575]]
exemption and the fundraising exemption would reduce information
asymmetries between issuers and investors, thus improving investor
decision-making and allowing issuers to raise capital at lower cost.
The proposed disqualification provision could help reduce potential
fraud and thus strengthen investor protection. The proposed startup and
fundraising exemptions would also allow issuers to offer and sell
unrestricted covered investment contracts to potential investors, which
could improve the liquidity of these securities and make them more
attractive to potential investors. At the same time, however, the
proposed Regulation Crypto Assets would generate costs for issuers and
investors. For example, we expect issuers to incur direct and indirect
disclosure costs. We discuss the benefits and costs of each provision
of the proposed Regulation Crypto Assets in turn.
a. General Provisions
The general provisions of Regulation Crypto Assets would provide
some important benefits to issuers and investors. Proposed Rule 101
streamlines compliance for crypto asset issuers by allowing the use of
multiple exemptions, clarifying when offerings must be integrated, and
requiring efficient electronic filings. It protects issuers from losing
exemptions due to minor, good-faith errors, and standardizes how to
count and price crypto asset units. Together, these provisions increase
regulatory flexibility, reduce administrative burdens, and provide
greater clarity and certainty for both issuers and investors.
Proposed Rule 101(a) would be beneficial to issuers because it
ensures that they can utilize the exemptions in Regulation Crypto
Assets without being restricted from using other exemptions.
Proposed Rule 101(b) would provide that issuers should refer to
Rule 152 to determine whether offers and sales should be integrated. We
also are proposing conforming amendments to Rules 152(c) and (d) to
clarify when an offering under an exemption in Regulation Crypto Assets
has commenced and terminated or completed, consistent with Rule 152's
treatment of existing exemptions (including offerings under Regulation
Crowdfunding and Regulation D). The proposed rule and conforming
amendments would benefit issuers by helping them ensure compliance and
prevent them from running afoul of the integration doctrine with
respect to other exempt offerings conducted before, or close in time
with, Regulation Crypto Assets offerings. This certainty may be
particularly beneficial for smaller issuers whose capital needs, and
thus preferred capital raising methods, may change frequently.
Proposed Rule 101(c) would require documents filed or otherwise
provided to the Commission pursuant to Regulation Crypto Assets to be
submitted in electronic format on EDGAR. This rule would benefit
investors by allowing them to access issuer information to more
efficiently aggregate and analyze information across issuers relying on
Regulation Crypto Assets. This could improve their investment
decisions. Electronic filing on EDGAR could also benefit issuers by
providing them with an efficient way to disseminate the disclosures
required under the proposed rules and hence supply important
information to investors. Electronic filing on EDGAR could also allow
issuers of covered investment contracts to more efficiently collect and
analyze relevant information from issuers relying on Regulation Crypto
Assets, including their competitors, which could provide them with
valuable insights into the market for covered investment contracts.
At the same time, some of the general provisions of proposed
Regulation Crypto Assets would result in certain costs for issuers and
investors. For example, the electronic filing requirement in proposed
Rule 101(c) would impose compliance costs on issuers, particularly
those issuers that have not previously used EDGAR, which include
submitting Form ID \466\and making filings on EDGAR. Such compliance
costs associated with electronic filing requirement would be similar to
those under existing exemptions such as Regulation D and Regulation
Crowdfunding. We estimate compliance costs per issuer associated with
Form ID to be $381.\467\
---------------------------------------------------------------------------
\466\ Form ID, the application for EDGAR access, must be
submitted and approved by SEC staff in order to make filings on
EDGAR. See Prepare and Submit My Form ID Application for EDGAR
Access, U.S. Securities and Exchange Commission (last reviewed or
updated Dec. 22, 2025), https://sec.gov/submit-filings/filer-support-resources/how-do-i-guides/prepare-submit-my-form-id-application.
\467\ The $381 estimate is based on the following calculation:
0.6 burden hours per response x $635 per hour. See infra section
V.c.4 (PRA analysis). Throughout this economic analysis, we have
estimated certain costs based on our analysis of the collection of
information burdens of the proposed rules for purposes of the
Paperwork Reduction Act of 1995 (``PRA''). As discussed in more
detail in section V.C.1.a., our PRA estimates represent the average
burden for all respondents, both large and small, and the burdens
will likely vary among individual respondents based on a number of
factors, including the size and complexity of their business.
---------------------------------------------------------------------------
Proposed Rule 101(d) would provide, among other matters, that
failure to comply with a term, condition, or requirement of Regulation
Crypto Assets would not result in the loss of any exemption under
Regulation Crypto Assets for any offer or sale to a particular
individual or entity under certain conditions. Proposed Rule 101(d) is
consistent with similar provisions in existing offering exemptions
(e.g., 17 CFR 227.502 of Regulation Crowdfunding and 17 CFR 230.508 of
Regulation D). This proposed rule would benefit issuers and investors
as it allows for certain errors that can occur in the offering process
without causing the issuer to lose the exemption and incur certain
related negative consequences. These consequences may affect the issuer
itself (e.g., by increasing compliance costs when trying to correct
such errors and/or not being able to raise capital in a timely manner
because of the loss of the exemption) as well as investors (e.g., by
forgoing valuable investment opportunities when an issuer loses the
exemption). Proposed Rules 101(d)(2) and 101(d)(3) would provide that
failure to comply with the exemption is actionable by the Commission
under Securities Act section 20 and could result in Commission
enforcement action, helping to ensure that investors remain protected
from misstatements in the offering process. Proposed Rule 101(d) could
impose costs on investors to the extent that issuers lessen the vigor
with which they develop and implement systems and controls to achieve
compliance with the requirements of the proposed exemptions, which may
result in a decrease in investor protection. Accordingly, we have
designed the conditions for the reliance on this rule to lessen the
potential impact on investor protection--specifically, the issuer would
be required to establish that: (i) the failure to comply did not
pertain to a term, condition, or requirement directly intended to
protect that particular individual or entity; (ii) the failure to
comply was insignificant with respect to the offering as a whole; and
(iii) a good faith and reasonable attempt was made to comply with all
applicable terms, conditions, and requirements of Regulation Crypto
Assets.
Finally, Rule 101(e) would specify how to determine the number of
units of covered investment contracts and the price per unit of a
covered investment contract. That rule would provide that, for purposes
of determining the number of units of covered investment contracts as
required by any rule or form in
[[Page 54576]]
Regulation Crypto Assets, one unit of a covered investment contract
would be equivalent to one unit of the subject crypto asset. Similarly,
the price per unit of a covered investment contract as required by any
rule or form in Regulation Crypto Assets should be determined by
reference to the price per unit of the subject crypto asset. As noted
above, we included this provision because we believe that specifying
how to measure the number of units of covered investment contracts and
determine the price per unit of a covered investment contract would
provide clarity and consistency to market participants.
b. Offering Limits and Inflation Adjustment for Offering Limits
Both the proposed startup exemption and the proposed fundraising
exemption have offering limits, combined with required disclosures that
are designed to provide appropriate investor protections while also
helping facilitate issuers' ability to issue covered investment
contracts to facilitate the distribution of the subject crypto asset
and raise capital to fund the development of their associated crypto
network or associated crypto application. The startup exemption would
allow issuers to raise up to $5 million in total for the four-year
duration of the exemption. The size of the offering limit combined with
the tailored (and, in some cases, less burdensome) disclosures should
allow issuers, especially those in early stages of development, to
raise capital at a lower cost compared to some of the existing
exemptions. For example, an issuer that decides to raise $5 million via
Regulation Crowdfunding would have to provide financial statements
(which would not be required under the startup exemption) and also
would be required to use an intermediary which usually charges a fee.
The average and median intermediary fee for Regulation Crowdfunding
offerings is approximately 6.6 percent and six percent,
respectively.\468\ Also, under the proposed rule, the amount of capital
raised by affiliates would count towards the offering limit of $5
million. This provision would strengthen investor protection by
preventing issuers from raising an amount of capital substantially
larger than $5 million through affiliates without providing appropriate
disclosures.
---------------------------------------------------------------------------
\468\ See supra note 449.
---------------------------------------------------------------------------
As explained above, the proposed fundraising exemption would
include scaled regulatory requirements based on offering size, which
should give issuers more flexibility in raising capital under the
fundraising exemption while providing appropriately tailored
protections for investors in each tier. Issuers seeking to raise a
larger amount of capital would be able to take advantage of the larger
maximum offering size in Tier 2 (up to $75 million in a 12-month
period) and also would be subject to additional disclosures and other
provisions. Covered investment contract issuers seeking to raise a
smaller amount of capital could conduct Tier 1 offerings with a lower
offering size limit (up to $20 million in a 12-month period) and
without being required to obtain an audit of their financial
statements.
Notwithstanding the foregoing, offering limits could constrain the
ability of issuers of covered investment contracts to achieve
significant diffusion of the subject crypto asset across various
parties participating in the associated crypto network or associated
crypto application to obtain the benefits of network effects. Offering
limits also could limit the ability of issuers to raise sufficient
capital to grow and develop their associated crypto network or
associated crypto application. This cost of the offering limits could
be mitigated to a certain extent if issuers who would need larger
amounts of capital would in addition rely on Rule 506(b) or Rule 506(c)
of Regulation D, which include no offering limits.
During the peak ICO period from 2016 to 2017, the average amount
raised in ICOs was approximately $20 million.\469\ This number both
tracks the limit that an issuer of covered investment contracts could
raise in a Tier 1 offering under the proposed fundraising exemption,
and it is well within the limit proposed for a Tier 2 offering.
However, the standard deviation of the amount raised was reported to be
approximately $177 million, suggesting a wide variety of amounts
raised. Based on this evidence, it is possible that some potential
issuers of covered investment contracts may be aiming to raise much
more than $20 million. Nevertheless, issuers of covered investment
contracts may be able to use the startup exemption in combination with
the fundraising exemption and/or other current offering exemptions,
assuming that such issuer does not run afoul of the integration
doctrine.\470\ This ability to combine exemptions could provide issuers
of covered investment contracts, especially the larger ones, with
valuable flexibility and significant access to capital.
---------------------------------------------------------------------------
\469\ See Howell, et al., supra note 401. The Davydiuk Study,
supra note 430, also presents evidence that the average amount
raised was approximately $17 million.
\470\ See supra note 130.
---------------------------------------------------------------------------
Moreover, data on the use of existing offering exemptions by
issuers of covered investment contracts suggests that the offering
limits in the proposed rules would not constrain the ability of issuers
to raise capital. Based on the analysis of crypto asset-related
Regulation D offerings in Table 2, such issuers raised on average $11.2
million per offering, which is much lower than what an issuer could
raise in a Tier 1 or Tier 2 offering under the proposed fundraising
exemption.
Small and early-stage issuers of covered investment contracts, on
the other hand, may prefer the proposed startup exemption if they do
not need large amounts of capital and may want to avoid the higher
compliance costs associated with the proposed fundraising exemption.
For those types of issuers, the comparison to capital raising under
Regulation Crowdfunding may be more apt. The average amount raised by
crypto asset-related Regulation Crowdfunding offerings ($545,300 per
Table 6) is smaller than the offering limit of the startup exemption.
However, Regulation Crowdfunding also requires financial statement
disclosures and involves an intermediary, both of which would result in
higher offering costs, compared to the proposed startup exemption.
Rule 102 of proposed Regulation Crypto Assets would require an
inflation adjustment for the offering limits of both the startup and
fundraising exemptions periodically, but not less than once every five
years, to reflect any changes in the Consumer Price Index for All Urban
Consumers published by the Bureau of Labor Statistics of the Department
of Labor. Such an adjustment would benefit issuers by ensuring that the
offering limits do not decrease over time when measured in constant
dollars (because they would be adjusted over time to account for
inflation).
c. Disqualification
Proposed Rule 104 would provide that the exemptions in Regulation
Crypto Assets are not available if the issuer or any associated person
or entity (as listed in Rule 262(a)) would be subject to
disqualification under Rule 262.
We expect that the disqualification provision could help reduce
potential fraud and thus strengthen investor protection compared with
not including a bad actor disqualification provision. If
disqualification standards lower the risk premium associated with the
risk of
[[Page 54577]]
fraud due to the presence of bad actors in covered investment contract
offerings, they could also reduce the cost of capital for issuers that
rely on the startup exemption or the fundraising exemption. In
addition, the requirement that issuers determine whether any covered
persons are subject to disqualification might reduce the need for
investors to do their own investigations (including any associated
costs) and could therefore increase efficiency.
Under proposed Rule 104, the issuer could still undertake a covered
investment contract offering if the issuer establishes that it did not
know and, in the exercise of reasonable care, could not have known that
a disqualification existed under Rule 262(a). This would decrease
issuer compliance costs, because by relying on a reasonable care
standard, the issuer would avoid the potentially large costs of having
to do a more comprehensive investigation to determine that no
disqualification exemption exists.
Under proposed Rule 104, the disqualification provisions would not
apply to any disqualification event that occurred prior to the
effective date of these proposed rules. This provision would benefit
issuers because it would allow them to engage in covered investment
contract offerings without the risk of the proposed rules being applied
retroactively.
Nevertheless, proposed Rule 104 would require the issuer to include
in an offering circular--or otherwise furnish to each purchaser, at a
reasonable time prior to sale--a description in writing of any matters
that would have triggered disqualification under Rule 104 but occurred
before the effective date of the final rules, if adopted. We estimate
compliance costs associated with the proposed disqualification
disclosure requirements per issuer to be $1,270 per offering.\471\
Despite a potential compliance cost for issuers, this would benefit
investors because the issuer would still provide disclosures of
relevant matters that would have triggered disqualification, thus
allowing investors to make better informed investment decisions.
---------------------------------------------------------------------------
\471\ The $1,270 estimate is based on the following
calculations: (2 burden hours per response x $635 per hour. See
infra section V.C.1.a.
---------------------------------------------------------------------------
Issuers that are disqualified from using the startup or the
fundraising exemption might experience an increased cost of capital or
a reduced availability of capital. In addition, issuers might incur
costs related to seeking disqualification waivers from the Commission
and replacing personnel or avoiding the participation of persons who
are subject to disqualifying events. Also, most existing offering
exemptions that are available to covered investment contract issuers
include disqualification provisions as well (e.g., Regulation D and
Regulation Crowdfunding).
d. Disclosures
As mentioned in section II, the proposed startup exemption,
fundraising exemption, and investment contract safe harbor would
require issuers of covered investment contracts to provide certain
disclosures. The frequency and the breadth of disclosures would differ
across the proposed rules. For example, the disclosures under the
fundraising exemption are more extensive than those under the startup
exemption and the investment contract safe harbor. The proposed
disclosure requirements would be tailored to provide information that
is material to investors in covered investment contract offerings so
that they can make informed investment decisions.\472\
---------------------------------------------------------------------------
\472\ See supra section 2.A.4. See also supra notes 89 and 90
for a discussion of commenters who suggested that the Commission's
existing disclosure requirements for the exempt offering regimes are
unfit for application to covered investment contracts.
---------------------------------------------------------------------------
Both the benefits and the costs of the various proposed disclosure
requirements would be limited to the extent that issuers already
provide the required information voluntarily or have such information
readily available. For example, as mentioned in section IV.A.3 above,
studies have shown that past ICO issuers provided some of the
information that the proposed rules would require (e.g., the issuer's
primary business purpose, the blockchain application, a timeline for
the development of the product or service, and material information
about the issuer's management). This would limit the costs to issuers
when providing such disclosures, while also limiting the benefit to
investors from these proposed disclosures.
When information about an issuer is difficult to obtain or the
quality of the information is uncertain, investors are at risk of
making poorly informed investment decisions about that issuer. Such
information asymmetries may be especially severe for issuers of covered
investment contracts because they are more likely to be small and at an
early stage of their lifecycle and thus may have significant risk
factors such as high information asymmetries, few and intangible
assets, high failure rates, and difficulty in accessing capital
markets. Additionally, developers are often not legally bound to their
project, operating with limited funding and frequently no formal legal
organizational structure (such as corporation) at the start, the latter
being permitted under the startup exemption. Crypto creators may have
relatively low exit costs because participants in their crypto networks
or applications typically have no ownership stakes and limited or no
legally enforceable rights. These considerations may give rise to
adverse selection and moral hazard concerns. If investors in offerings
of covered investment contracts have limited information about issuers
or a limited ability to monitor them, they may seek higher compensation
for their investment or choose to withdraw from the offering market
altogether, both of which would increase the cost of capital to
issuers.
Issuers of covered investment contracts would be able to raise a
larger amount of capital (up to $75 million during a 12-month period)
under the proposed fundraising exemption. Accordingly, the proposed
rules seek to reduce information asymmetries between issuers and
potential investors by requiring issuers of covered investment
contracts to file specified disclosures with the Commission, which
would require financial statements.
These disclosure provisions should improve investor decision-making
and could ultimately benefit issuers by improving price efficiency in
the market for covered investment contracts. The proposed disclosure
requirements would enhance the ability of issuers of covered investment
contracts relying on the proposed rules to raise capital, while
enabling investors to make informed investment decisions. The ongoing
reporting requirements, in particular, would provide a liquidity
benefit for secondary sales of covered investment contracts issued
under the proposed rules and make the prices of such securities more
informationally efficient, should a secondary market develop.
i. Rule 103
Proposed Rule 103 would set forth principles-based disclosure
requirements with respect to offerings of covered investment contracts
under the proposed startup exemption and the proposed fundraising
exemption. Rule 103 would include disclosure requirements organized
into the following topics: (1) covered investment contract; (2)
offering; (3) subject crypto asset; (4) management, related persons,
and conflicts of interest; (5) associated
[[Page 54578]]
crypto network/application; plan of development; (6) security; source
code; (7) subject crypto asset economics and allocations; (8)
governance; (9) subject crypto asset ecosystem; and (10) risk factors.
The disclosures required under this proposed rule are tailored to
offerings of covered investment contracts and as a result may be less
costly for issuers to provide than the disclosures required under some
of the other existing exemptions.
The proposed principles-based disclosure requirements for the
startup exemption and the fundraising exemption under Regulation Crypto
Assets would allow issuers of covered investment contracts to more
directly tailor their disclosures to provide the information about
their particular circumstances that is material to an investment
decision. This ability to tailor disclosures could in turn help reduce
an issuer's compliance costs compared to a more prescriptive disclosure
requirements regime. The principles-based disclosure requirements would
also benefit issuers in the form of lower cost of capital. A number of
studies show that increased disclosure and improvements in disclosure
quality lead to lower cost of capital for issuers.\473\ There is also
evidence of a positive link between capital-raising activities and
disclosure quantity and quality.\474\
---------------------------------------------------------------------------
\473\ See, e.g., Christine Botosan, Disclosure Level and the
Cost of Equity Capital, 72 Acct. Rev. 323 (1997); Christian Leuz &
Robert Verrecchia, The Economic Consequences of Increased
Disclosure, 38 J. Acct. Rsch. 91 (2000); Robert Verrecchia, Essays
on Disclosure, 32 J. Acct. & Econ. 97 (2001).
\474\ See, e.g., Paul Healy, et al., Stock Performance and
Intermediation Changes Surrounding Sustained Increases in
Disclosure, 16 Contemp. Acct. Rsch. 485 (1999); Mark Lang & Russell
Lundholm, Voluntary Disclosure and Equity Offerings: Reducing
Information Asymmetry or Hyping the Stock?, 17 Contemp. Acct. Rsch.
623 (2000); and Nemit Shroff, et al., Voluntary Disclosure and
Information Asymmetry: Evidence from the 2005 Securities Offering
Reform, 51 J. Acct. Rsch. 1299 (2013).
---------------------------------------------------------------------------
The proposed disclosure requirements in Rule 103 could also benefit
investors, to the extent that such requirements result in information
that is more tailored to the specific circumstances and the needs of
investors in covered investment contract offerings. Relatedly,
principles-based requirements are less likely to lead to disclosure
that is outdated or is less applicable to the particular offering. At
the same time, to the extent issuers make incorrect judgments about the
materiality of potentially responsive information, the proposed
principles-based disclosure approach (as compared to a more
prescriptive approach) could result in potentially less precise,
incomplete disclosures from the viewpoint of investors. This limitation
could reduce the benefits to investors from the disclosure. Another
potential cost associated with the principles-based disclosure approach
is that it could reduce comparability across issuers and transactions
to the extent that issuers report similar information using different
metrics, procedures, or mechanisms.\475\ Retail investors who may not
have the resources or ability to obtain information from alternative
sources could be more affected than more sophisticated investors as a
result.
---------------------------------------------------------------------------
\475\ See, e.g., Mark W. Nelson, Behavioral Evidence on the
Effects of Principles-and Rules-Based Standards, 17 Acct. Horizons
91 (2003); Katherine Schipper, Principles-Based Accounting
Standards, 17 Acct. Horizons 61 (2003). These articles note
potential advantages of rules-based accounting standards, including
increased comparability among firms, increased verifiability for
auditors, and reduced litigation for firms.
---------------------------------------------------------------------------
Some of these potential costs could be mitigated to the extent the
Commission's staff reviews certain filings made under the proposed
fundraising exemption pursuant to the qualification process. Issuers
would also remain subject to the antifraud provisions of the securities
laws for omission of information material to an investment
decision.\476\ There also may be incentives for issuers to voluntarily
disclose additional information if the benefits to issuers of such
additional disclosure for investors (e.g., investors requiring a lower
discount as compensation for adverse selection, which would reduce
issuers' cost of financing) exceed the costs associated with such
additional disclosure.
---------------------------------------------------------------------------
\476\ See, e.g., 17 CFR 240.10b-5(b).
---------------------------------------------------------------------------
Issuers of covered investment contracts that provide the required
disclosures could incur an indirect cost in the form of disclosure of
potentially sensitive information to competitors. To the extent that
such information could be used by competitors, issuers of covered
investment contracts, especially early-stage and high-growth issuers,
could potentially lose a competitive or intellectual property
advantage. The fact that the disclosure requirements are principles-
based could help lessen some of this cost. Further, disclosure costs
(both direct and indirect) would be mitigated to the extent that
issuers already voluntarily disclose required information (e.g.,
through whitepapers), and, in the case of the proposed fundraising
exemption, by the option to request confidential treatment for certain
information, as well as the option to submit a draft offering statement
for non-public staff review (although the offering statements must be
publicly filed before sales can occur).
Issuers utilizing the startup exemption would be required to make
the information required in proposed Rule 103 available on a publicly
accessible website, free of charge, at the website address specified in
the notice of reliance at or prior to the time that the notice of
reliance is filed.\477\ Additionally, issuers of covered investment
contracts that rely on the proposed startup exemption would be required
to ensure that the information remains accessible for the entirety of
the period the issuer relies on the startup exemption.\478\ Requiring
this information for the entirety of the period the issuer relies on
the startup exemption would strengthen investor protection by
preventing a situation in which an issuer technically complies with
Rule 200(d)(1) by providing the information at or prior to filing the
notice of reliance but removes that information shortly (or
immediately) after filing the notice of reliance.
---------------------------------------------------------------------------
\477\ See proposed 17 CFR 228.200(d)(1).
\478\ See proposed 17 CFR 228.200(d)(2).
---------------------------------------------------------------------------
Giving issuers the flexibility to provide this information on a
website of their choice may mitigate some financial and administrative
burdens associated with filing on EDGAR. This would also make it easier
and less costly for an investor to access the information and make
informed investment decisions, compared to a situation where the
information is not required to be publicly accessible, or is accessible
for a fee. This proposed rule also could generate costs for issuers
relying on the exemption. For example, issuers may incur costs in
maintaining the website address on which the information will be housed
and periodically amending that information to reflect any material
changes in the information previously reported. If an issuer already is
relying on the other proposed exemption, or otherwise already has this
information, such costs would be minimal. Also, this proposed rule
could generate costs for investors in such offerings. For example, it
may make it more difficult for investors to identify what has changed
if an amendment is made to reflect a material change, or to refer to a
prior iteration of the disclosure. Additionally, investors may incur
search costs if trying to compare disclosures across multiple issuers
if they have to collect information on different websites that store
and present this information in various formats.
The startup exemption would also require the issuer to amend the
information disclosed annually if there
[[Page 54579]]
are any material changes in the information previously disclosed.\479\
These requirements would benefit investors by providing access to
material changes to information previously disclosed by an issuer
relying on the startup exemption, which would aid them in their
investment decision-making. We estimate compliance costs associated
with providing the initial disclosures under Rule 200(d) and the
burdens per issuer associated with keeping that information publicly
accessible and periodically amending that information to reflect
material changes to be $31,750,\480\ which assumes the issuer does not
already have the information otherwise available such as in the form of
a whitepaper.
---------------------------------------------------------------------------
\479\ See proposed 17 CFR 228.200(d)(3).
\480\ The $31,750 estimate is based on the following
calculations: 50 burden hours per response x $635 per hour. See
infra section V.C.1.c (PRA analysis).
---------------------------------------------------------------------------
ii. Form NOR
Issuers relying on the startup exemption would be required to file
a notice of reliance with the Commission containing the information
required by Form NOR, including certain information about the issuer
(e.g., name and contact information) and the name of the subject crypto
asset, as well as the website address at which the issuer will make the
information described in proposed Rule 103 publicly accessible, free of
charge, prior to the commencement of any covered transaction.\481\
Issuers would also have to file amendments to Form NOR in certain
circumstances.\482\ The disclosure requirements in Form NOR would have
associated limitations and costs, including the costs of preparation,
certification, and dissemination via EDGAR and posting the disclosures
on the issuer website. We estimate annual compliance costs per issuer
associated with the proposed Form NOR to be $2,540.\483\
---------------------------------------------------------------------------
\481\ See proposed 17 CFR 228.200(e).
\482\ See proposed 17 CFR 228.200(c)(3).
\483\ The $2,540 estimate is based on the following
calculations: 4 burden hours per response x $635 per hour. See infra
section V.C.1.b (PRA analysis).
---------------------------------------------------------------------------
iii. Form TR
Issuers relying on the proposed startup exemption or the proposed
investment contract safe harbor, and some issuers relying on the
proposed fundraising exemption, would be required to file a transition
report with the Commission containing the information required by Form
TR.\484\ Form TR's disclosure requirements would depend on the rule
pursuant to which it was filed and could include, for example, certain
information about the issuer, certain information about the covered
investment contract, and an analysis as to whether the issuer completed
or otherwise permanently ceased all essential managerial efforts that
it promised or represented it would engage in under the covered
investment contract.\485\ The disclosure requirements in Form TR would
have associated limitations and costs, including the costs of
preparation, certification, and dissemination via EDGAR. Compliance
costs for issuers relying on the proposed investment contract safe
harbor would include costs associated with ensuring the accuracy of
their certification and analysis supporting such certification. There
would be no incremental costs from this requirement for issuers that
already filed Form TR under the startup exemption or the fundraising
exemption (to the extent that they had filed a single Form TR to
satisfy their transition reporting obligations under the relevant
exemption as well as the investment contract safe harbor).
---------------------------------------------------------------------------
\484\ See proposed 17 CFR 228.200(c).
\485\ See proposed 17 CFR 228.200(e) (startup exemption);
proposed 17 CFR 228.305(c) and (d) (fundraising exemption); proposed
17 CFR 228.400(b) (investment contract safe harbor).
---------------------------------------------------------------------------
The compliance cost per issuer would vary depending on the
circumstances under which an issuer is filing Form TR. We estimate
compliance per issuer costs associated with the proposed Form TR under
the startup exemption to be $12,700.\486\ We estimate annual compliance
costs per issuer associated with the proposed Form TR under the
fundraising exemption to be $13,652.50.\487\ We estimate annual
compliance costs per issuer associated with the proposed Form TR under
the investment contract safe harbor to be $19,050.\488\
---------------------------------------------------------------------------
\486\ The $12,700 estimate is based on the following
calculations: 20 burden hours per response x $635 per hour. See
infra section V.C.3.a (PRA analysis).
\487\ The $13,652.50 estimate is based on the following
calculations: 21.5 burden hours per response x $635 per hour. See
infra section V.C.3.b (PRA analysis).
\488\ The $19,050 estimate is based on the following
calculations: 30 burden hours per response x $635 per hour. See
infra section V.C.3.c (PRA analysis).
---------------------------------------------------------------------------
iv. Offering Statement; Periodic and Current Reporting Requirements
The proposed fundraising exemption would require more extensive
disclosures than the other proposed rules in the form of an offering
statement, an offering circular, and periodic reports (on an annual,
semiannual, and current basis). The disclosure requirements for the
proposed fundraising exemption would also be more extensive than those
required under some other existing exemptions from registration,\489\
and offerings under the fundraising exemption must be qualified before
sales are made, both of which are expected to enhance investor
protection.
---------------------------------------------------------------------------
\489\ For example, Regulation D offerings under Rules 504 and
506(c) and offerings relying on an exemption under Securities Act
section 3(a)(11) or section 4(a)(2) do not require one-time or
ongoing disclosure and do not undergo qualification by the
Commission. However, of those offerings, only offerings under Rule
506(c) have preemption from state law registration or qualification
requirements, thus it is possible that other offering types may have
disclosure requirements mandated by the states where offers and
sales are made. Regulation D offerings under Rule 506(b) require
issuers to provide a disclosure document to non-accredited investors
with financial statements, but these documents are not filed with
the Commission and there are no periodic reporting requirements
under Rule 506(b).
---------------------------------------------------------------------------
The disclosure requirements in the fundraising exemption would
benefit investors by providing them with information that would enable
them to more accurately value the covered investment contracts at the
time of the offering. The proposed periodic disclosures also would
allow investors to evaluate how the issuer is performing over time and
when the issuer may terminate its ongoing reporting obligations.
Additionally, disclosure by one issuer of covered investment contracts
could provide important information to investors when evaluating other
issuers of covered investment contracts (e.g., about the prospects of
those other issuers) to the extent that the issuers are in similar
markets or developing similar products. Also, the disclosures proposed
under the fundraising exemption would likely have a positive effect on
secondary market liquidity for covered investment contracts.\490\
---------------------------------------------------------------------------
\490\ There is a large volume of literature that finds a
positive association between increased disclosure and liquidity.
See, e.g., Paul Healy, et al., Stock Performance and Intermediation
Changes Surrounding Sustained Increases in Disclosure, 16 Contemp.
Acct. Rsch. 485 (1999); Christian Leuz & Robert Verrecchia, The
Economic Consequences of Increased Disclosure, J. Acct. Rsch. 91
(2000); Frank Heflin, et al., Disclosure Policy and Market
Liquidity: Impact of Depth Quotes and Order Sizes, 22 Contemp. Acct.
Rsch. 829 (2005); Stephen Brown & Stephen Hillegeist, How Disclosure
Quality Affects the Level of Information Asymmetry, 12 Rev. Acct
Stud. 433 (2007).
---------------------------------------------------------------------------
The proposed fundraising exemption would require issuers to prepare
an offering statement using Form 1-CRYPTO. Issuers would have two ways
to file Part I of proposed Form 1-CRYPTO with the Commission. An issuer
could use a fillable web form provided by EDGAR to input Part I of
proposed Form 1-CRYPTO disclosures that EDGAR will convert to proposed
Form 1-CRYPTO-specific XML, or alternatively, use its own software tool
[[Page 54580]]
to file Part I of proposed Form 1-CRYPTO to EDGAR directly in proposed
Form 1-CRYPTO-specific XML. Requiring issuers to file Part I of Form 1-
CRYPTO on EDGAR in form-specific XML would allow Commission staff to
more efficiently process, aggregate, and analyze the reported
information about the issuers and offerings prior to qualification of
the offering statement, which could increase the efficiency of the
Commission's ability to qualify issuer's offering statements.\491\ We
also expect that filing Part I of Form 1-CRYPTO using form-specific XML
will make it easier for markets and investors, as applicable, to
access, compile, and analyze the disclosed information, which could
facilitate comparisons of issuers or observations regarding the impacts
of secondary sales over time.
---------------------------------------------------------------------------
\491\ See supra note 512 and accompanying discussion regarding
potential cost to issuers waiting for offerings to be qualified.
---------------------------------------------------------------------------
There are costs associated with filing proposed Form 1-CRYPTO.
Requiring issuers to use a form-specific XML for Part I of Form 1-
CRYPTO could impose additional compliance costs. Issuers who elect to
use the fillable web form described above for their filing are not
expected to incur additional software or filing agent costs to prepare
the XML submission (beyond the costs of preparing the underlying
disclosure). Other issuers may choose to encode their disclosures in
XML in accordance with the EDGAR Filer Manual and will submit the XML
disclosures to EDGAR directly rather than manually completing fillable
web forms to be converted into XML documents. These issuers might incur
implementation costs associated with integrating any new or updated XML
schemas into their existing data systems; however, it might be
beneficial for them because it allows for greater automation (e.g.,
calculating and prepopulating certain disclosures) in the process of
submitting data that is already structured directly to EDGAR. It also
removes the need to manually type into fillable web fields.
The fundraising exemption would require that financial statements
provided in Form 1-CRYPTO be prepared in accordance with U.S. GAAP.
This proposed provision would lead to more standardized financial
statements across issuers of covered investment contracts relying on
the fundraising exemption, thus improving investors' ability to analyze
and compare issuers. This would in turn help decrease the level of
information asymmetry between issuers and potential investors, thus
lowering the discount that investors require as compensation for
adverse selection and also reducing issuers' cost of financing.\492\
Evidence from past ICO transactions provides support for some of these
issuer benefits. For example, ICOs tend to be more successful when
their whitepapers are more informative.\493\ The benefits resulting
from the proposed disclosure may be limited to the extent that some of
that information is already voluntarily disclosed by issuers.
---------------------------------------------------------------------------
\492\ See, e.g., Christian Leuz & Peter D. Wysocki, The
Economics of Disclosure and Financial Reporting Regulation: Evidence
and Suggestions for Future Research, 54 J. Acct. Rsch. 525 (Feb.
2016). This article surveys the empirical literature on the economic
consequences of disclosure. The authors discuss potential
capital[hyphen]market benefits from disclosure and reporting, such
as improved market liquidity and decreased cost of capital.
\493\ See Evgeny Lyandres, et al., ICO Success and Post-ICO
Performance (working paper, July 17, 2020), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3287583 (retrieved from
SSRN Elsevier database).
---------------------------------------------------------------------------
For Tier 2 offerings under the fundraising exemption, the financial
statements included in the offering statement would be required to be
audited in accordance with either U.S. GAAS or the standards of the
PCAOB--by an auditor that is independent under the independence
standards of Rule 2-01 of Regulation S-X--and the report and
qualifications of the independent accountant would be required to
comply with the requirements of Article 2 of Regulation S-X. Audited
financial statements could lower the cost of capital or increase the
supply of capital because of potentially higher investor confidence in
the quality of financial statements that are audited by an independent
public accountant. One important direct cost for issuers relying on the
proposed fundraising exemption would be the compliance costs associated
with the preparation and distribution of the offering circular,
offering statement, and periodic filings. The financial information
required under the fundraising exemption would be more extensive than
the information required under several existing exemptions, such as
Rule 506(c) and section 4(a)(2) of the Securities Act.\494\ These
requirements are also much more extensive than what issuers in prior
ICOs provided.\495\ On the other hand, these disclosures are similar to
those required under larger Regulation Crowdfunding offerings. Thus,
when deciding whether to raise capital via the proposed fundraising
exemption or some of the existing exemptions, issuers of covered
investment contracts would weigh, among other things, the benefits and
costs of these disclosure requirements.
---------------------------------------------------------------------------
\494\ See supra section IV.A.1.
\495\ See supra section IV.A.3.
---------------------------------------------------------------------------
The requirement of audited financial statements could also impose
significant costs on issuers of covered investment contracts, and the
costs of an audit could discourage the use of Tier 2 offerings in the
fundraising exemption. Audit costs could have a fixed component, which
would make them costlier for smaller issuers. As mentioned earlier,
issuers of covered investment contracts are likely to be small and
early-stage. For such issuers, audit costs could be relatively large,
especially because of the fixed costs component. Based on data from
registered IPOs with proceeds under $75 million from 2014 through 2024
by issuers that would have been potentially eligible for the
fundraising exemption, the average (median) total accounting fees
amounted to 1.9 percent (0.9 percent) of gross offering proceeds, where
reported separately.\496\ That said, the proposed flexibility for
issuers of covered investment contracts to choose between having
financial statements audited in accordance with either U.S. GAAS or the
standards of the PCAOB, may help contain some of the issuer compliance
costs relative to only permitting audits that are in accordance with
the standards of the PCAOB.
---------------------------------------------------------------------------
\496\ This estimate is based on London Stock Exchange Group's
Securities Data Company data on IPOs with issue dates in 2014
through 2024, excluding offerings from non-US issuers, blank check
companies, and investment companies. Offerings with proceeds below
$1,000 are excluded to minimize measurement error. Accounting fees
include the cost of preparing accounting statements, in addition to
the cost of an audit. We also note that costs incurred by issuers in
registered IPOs may not be representative of costs incurred by
issuers in Tier 2 offerings.
---------------------------------------------------------------------------
We estimate compliance costs per issuer associated with Form 1-
CRYPTO to be $455,531.22 for both Tier 1 and Tier 2 offerings
(including audit costs).\497\ We estimate compliance costs per issuer
associated with Form 1-KC to be $381,000 for both Tier 1 and Tier 2
offerings.\498\ We estimate compliance costs per issuer associated with
Form 1-SC to be $119,405.40 for both Tier 1 and Tier 2 offerings.\499\
We estimate compliance costs per issuer associated
[[Page 54581]]
with Form 1-UC to be $3,175 for both Tier 1 and Tier 2 offerings.\500\
---------------------------------------------------------------------------
\497\ The $455,531.22 estimate is based on the following
calculations: 717.372 burden hours per response x $635 per hour. See
infra section V.C.2.a (PRA analysis).
\498\ The $381,000 estimate is based on the following
calculations: 600 burden hours per response x $635 per hour. See
infra section V.C.2.b (PRA analysis).
\499\ The $119,405.40 estimate is based on the following
calculations: 188.04 burden hours per response x $635 per hour. See
infra section V.C.2.c (PRA analysis).
\500\ The $3,175 estimate is based on the following
calculations: 5 burden hours per response x $635 per hour. See infra
section V.C.2.d (PRA analysis).
---------------------------------------------------------------------------
e. Unrestricted Covered Investment Contracts
The proposed startup and fundraising exemptions would allow issuers
to offer and sell unrestricted covered investment contracts to
potential purchasers. This could improve the liquidity of these
contracts, and that of the subject crypto assets, and make them more
attractive to potential purchasers compared to a scenario where the
covered investment contracts were restricted securities. As mentioned
above, the ability of issuers to provide freely tradable and liquid
underlying crypto assets is key for incentivizing participation in the
crypto networks/applications that support the ability of those
networks/applications to develop and achieve network effects. The
ability, because of the proposed rules, of issuers to offer and sell
unrestricted covered investment contracts would likely enhance the
tradability and liquidity of the subject crypto assets, thereby
attracting more participants and facilitating the scaling of the
associated crypto network or associated crypto application to obtain
the benefits of network effects. It would also allow issuers to raise
capital to fund economic incentives at the early stages of the network/
application, which could be important for keeping it secure, useful,
and active. The ability of issuers to offer and sell unrestricted
covered investment contracts would also lower investor trading costs.
Issuers of covered investment contracts could benefit in two main
ways: (1) increased capital raising, and (2) better pricing, in terms
of lower discounts to be offered to investors. The ability to purchase
unrestricted covered investment contracts could make more investors
interested in an offering under the proposed exemptions, as compared to
an offering pursuant to which they receive restricted securities, thus
allowing an issuer to raise more capital, more quickly and efficiently.
Additionally, if investors in an offering were to obtain illiquid
securities, then they would likely require a discount to the fair
market price of these securities to compensate them for their limited
ability to trade in these securities. The ability to purchase
unrestricted covered investment contracts under the proposed rules
would reduce potential investors' need for such an illiquidity discount
at the time of initial purchase and further lower the issuers' cost of
capital raising. In addition, to the extent that this results in active
secondary trading, it would promote enhanced price discovery and
greater informational efficiency of covered investment contract prices.
Quantifying the benefit for issuers of potentially lower
illiquidity discounts on covered investment contracts offerings, as a
result of the proposed rules, is difficult. Academic studies have tried
to estimate the magnitude of the illiquidity discount using various
types of transactions, including private or public companies. One study
examined the discount between unrestricted and restricted shares of the
same public issuer. It found that such illiquidity (also called
``marketability'') discount varies between 5.2 percent and 5.6
percent.\501\ Two other studies, one using data on acquisitions of
similar private and public companies \502\ and the other using data on
privately traded companies and publicly traded companies,\503\ found
the illiquidity discount to be around 20 percent to 25 percent. This
range of estimates is wide--from approximately five percent to 25
percent. Yet, even under a more conservative approach that assumes the
potential illiquidity discount on covered investment contracts would be
closer to the five percent lower bound of the estimated range, a
reduction or elimination of that discount as a result of the proposed
rules' requirements would provide a significant benefit to the issuers
of covered investment contracts by allowing them to issue fewer covered
investment contracts to raise the desired amount of capital. It is also
plausible, however, that the size of the illiquidity discount for
covered investment contracts would be larger. The issuers of covered
investment contracts are likely to be smaller and younger than the
private companies used in the analyses in the referenced studies, which
makes the likelihood of a liquid post-offering market for covered
investment contracts developing more uncertain. Additionally, because
of their unique features, trading in covered investment contracts may
be different and newer than that in more traditional securities, which
also makes the liquid post-offering market more uncertain. Hence,
potential investors in covered investment contracts may require
illiquidity discounts that are larger than 25 percent. If that were the
case, the potential benefit of the proposed rules could be much larger.
---------------------------------------------------------------------------
\501\ See Robert Comment, Revisiting the Illiquidity Discount
for Private Companies: A New (and ``Skeptical'') Restricted Stock
Study, 24 J. Applied Corp. Fin. 80 (Mar. 2012).
\502\ See John Koeplin, et al., The Private Company Discount, 12
J. Applied Corp. Fin. 94 (2000).
\503\ See Stanley Block, The Liquidity Discount in Valuing
Privately Owned Companies, 17 J. Applied Fin. 33 (2007).
---------------------------------------------------------------------------
The magnitude of the potential benefits associated with
unrestricted covered investment contracts would depend on the degree to
which a liquid secondary market for covered investment contracts
develops after an initial offering. If such a market does not develop,
or takes time to develop, the magnitude of the benefits associated with
unrestricted covered investment contracts may be fairly small.
2. Benefits and Costs of the Proposed Startup Exemption
The startup exemption is intended to provide issuers with a
regulatory runway during which they could attempt to fulfill their
representations or promises to engage in essential managerial efforts
under covered investment contracts. Proposed Rule 200(b)(1) would
require the covered transaction to occur during the period beginning
after the issuer has filed a notice of reliance and ending on the date
that is the earlier of (i) four years after the date of such filing or
(ii) the date on which the issuer files a transition report pursuant to
proposed Rule 200(e). The four-year maximum period specified by the
proposed rule would benefit issuers by providing them with a reasonable
amount of time to fulfill their representations or promises to engage
in essential managerial efforts under covered investment contracts.
Issuers relying on the exemption would be able to perform the tasks
needed to develop, test, and launch their projects with requirements
that are tailored to covered investment contracts and their issuers for
the duration of the exemption. It could also generate costs for issuers
for which four years is not enough to fulfill such representations or
promises. Such issuers may need to rely on other, potentially more
expensive, exemptions to raise capital needed to fulfill such
representations or promises.
The four-year maximum period specified by the proposed rule could
also benefit investors in covered investment contracts by providing
them with a better understanding of the potential ``outside date''
within which the issuer likely would seek to fulfill its
representations or promises under the covered investment contract. For
example, this would allow investors who prefer to hold covered
investment contracts, or generally prefer to hold securities instead of
non-security crypto assets, to sell such covered investment contracts
within this four-year period as
[[Page 54582]]
they may not fit their investment strategies/horizons anymore. If such
investors have to liquidate their positions in a short period of time,
this could put downward pressure on the value of covered investment
contracts and thus may generate losses for investors in those
contracts.
Proposed Rule 200(b)(2) would state that the issuer may be an
entity, an individual, or a group of individuals or entities. This
provision would be beneficial to issuers since it would allow an issuer
that is in the early stages of a project, as well as a developer or
development team that may not have consulted legal counsel or spent the
time and money to form a legal entity through which to conduct their
business, to be able to use the exemption and raise capital. Also,
proposed Rule 200(b)(2) would require that if the issuer is composed of
a group of individuals/entities, each member of the group must satisfy
the conditions and provide the required certifications. This
requirement would strengthen investor protection by preventing
potential evasion of the proposed rules through organizational
structuring.
Proposed Rule 200(b)(3) would require that the issuer and its
affiliates have not previously relied on the startup exemption for the
subject crypto asset, or a substantially similar crypto asset, other
than with respect to covered transactions that occurred during the
period set forth in Rule 200(b)(1). This requirement would strengthen
investor protection by preventing a single issuer from circumventing
the offering size limitation by permitting multiple affiliates of an
issuer, using the subject crypto asset, or a substantially similar
crypto asset, to raise collectively more than $5 million without
providing more disclosures or being subject to additional requirements
commensurate with the larger amount of capital being raised. This rule
could also impose costs on issuers that have multiple affiliates
engaged in developing associated crypto networks or associated crypto
applications, to the extent that those applications and networks use
the same or a substantially similar subject crypto asset.
We estimate compliance costs per issuer associated with the startup
exemption to be $48,641.\504\ These costs include burdens associated
with several proposed rules that are relevant to the startup exemption,
and are described in more detail above.
---------------------------------------------------------------------------
\504\ The estimate is calculated as $35,941 + $12,700. The
$35,941 estimate is based on the following calculations: 56.60
burden hours per response x $635 per hour. These include the total
estimated paperwork burdens of the ``Rule 200 of Regulation Crypto
Assets (Form NOR)'' information collection attributed to Rules
104(b), 200(c), and 200(d), plus the burdens associated with filing
Form ID. See infra section V.C.1.d (PRA analysis). The $12,700
estimate is the cost associated with the proposed Form TR
attributable to Rule 200(e) under the startup exemption and is based
on the following calculations: 20 burden hours per response x $635
per hour. See infra section V.C.3 (PRA analysis).
---------------------------------------------------------------------------
3. Benefits and Costs of the Proposed Fundraising Exemption
The fundraising exemption would benefit issuers of covered
investment contracts by providing a framework to more efficiently raise
capital and would increase issuer choice when relying on external
financing for capital formation. The proposed fundraising exemption
would benefit investors because the conditions of the exemption would
ensure that investors are adequately informed and protected. On the
other hand, issuer eligibility criteria may prevent certain issuers
from using the exemption, thus making them rely on costlier or more
burdensome sources of capital. Additionally, the investment limitation
may reduce the ability of some investors to invest as much as they
would like in potentially beneficial investment opportunities and may
limit the attractiveness of the proposed fundraising exemption to
prospective issuers, thereby reducing the potential capital formation
and competition benefits.
a. Issuer Eligibility Criteria
The eligibility criteria in proposed Rule 300(b) would strengthen
investor protection by limiting the set of issuers that can rely on the
proposed fundraising exemption.\505\ The proposed fundraising exemption
would not be available to: a development stage company that either has
no specific business plan or purpose, or has indicated that its
business plan is to merge with or acquire an unidentified company or
companies; \506\ an investment company registered or required to be
registered under the Investment Company Act or a business development
company as defined in Investment Company Act section 2(a)(48); \507\ or
an issuer that is or has been subject to any order of the Commission
entered pursuant to Exchange Act section 12(j) within five years before
the filing of the offering statement (provided, however, that this
exclusion would not apply to any issuer subject to an order of the
Commission entered pursuant to section 12(j) before the date on which
Rule 300 becomes effective, if the rule is ultimately adopted).\508\
---------------------------------------------------------------------------
\505\ See supra section II.C.2.a.ii.
\506\ See proposed 17 CFR 228.300(b)(2).
\507\ See proposed 17 CFR 228.300(b)(3).
\508\ See proposed 17 CFR 228.300(b)(4).
---------------------------------------------------------------------------
Investors, especially less sophisticated investors, may find it
difficult and costly to determine the valuation and risk of securities
of a development stage company that either has no specific business
plan or purpose or has indicated that its business plan is to merge
with or acquire an unidentified company or companies, so the exclusion
of those companies from the proposed fundraising exemption may reduce
investor costs or risks. Similarly, the specialized nature of
investment companies and business development companies would warrant
different disclosures than what we propose in the fundraising exemption
for a proper understanding of an investment in their securities.
Excluding issuers of covered investment contracts that were subject to
a denial, suspension, or revocation order by the Commission pursuant to
Exchange Act section 12(j) within the five years preceding the filing
of the offering statement may help incentivize issuers to comply with
their obligations under the Exchange Act, including their ongoing
reporting obligations, and will prevent issuers with a history of non-
compliance from relying on the fundraising exemption after they
terminate or suspend their Exchange Act reporting obligations. This
would further enhance investor protection.
Additionally, an issuer seeking to raise capital via the
fundraising exemption would be required to be an entity organized
under, and subject to, the laws of the United States, or any State or
territory of the United States or the District of Columbia; provided
further that (i) a majority of the issuer's executive officers or
directors must be U.S. citizens or residents, (ii) more than 50 percent
of the issuer's assets must be located in the United States, and (iii)
the issuer's business must be administered principally in the United
States. These conditions may facilitate the ability of investors to
seek recourse against issuers in the event of fraud or other misconduct
and provide domestic investors with more easily accessible investment
opportunities. It would also make it easier for investors to collect
and analyze information and value issuers' covered investment
contracts.
To the extent that some issuers would be ineligible to rely on the
proposed exemption to raise capital, they may have to rely on costlier
or more burdensome sources of capital or alter their organizational
structure in order to qualify for the exemption. We also
[[Page 54583]]
recognize that excluding certain categories of issuers would affect
capital formation by preventing offerings by issuers who otherwise
might have utilized the fundraising exemption rather than other methods
of capital raising. The negative effect on capital formation for the
issuers ineligible under the proposed exemption may be mitigated if
such issuers avail themselves of other exemptions.
b. Requirements Regarding Offers and Sales; Investment Limitations
The proposed fundraising exemption would allow sales to be made
only after the offering statement has been qualified. Subjecting the
offering statement to Commission staff review (pursuant to delegated
authority from the Commission \509\) prior to the issuer being
permitted to make sales would have investor protection benefits.
Certain of the offering conditions of the fundraising exemption would
provide benefits to issuers as well, as they would allow issuers to
communicate and make offers to potential investors prior to
qualification. Additionally, the proposed rules would allow for
continuous or delayed offerings in some circumstances, which may offer
valuable flexibility to issuers. Lastly, Rule 300(c) would provide
that, other than solicitation of interest communications pursuant to
Rule 304 (i.e., testing the waters), no offer of securities may be made
unless an offering statement has been filed with the Commission. This
proposed requirement would protect investors by ensuring that they have
access to the appropriate material information in connection with any
such offer.
---------------------------------------------------------------------------
\509\ See supra note 340.
---------------------------------------------------------------------------
Under the proposed rules, if the purchaser is not an accredited
investor as defined in Rule 501(a) of Regulation D,\510\ the aggregate
purchase price to be paid by the purchaser cannot exceed 10 percent of
the greater of the purchaser's annual income or net worth (or in the
case of non-natural persons, the greater of revenue or net assets for
the most recently completed fiscal year). An issuer may rely on a
representation of the purchaser when determining compliance with this
investment limitation, provided that the issuer does not know at the
time of sale that the representation is untrue. This limitation would
apply to both Tier 1 and Tier 2 offerings.
---------------------------------------------------------------------------
\510\ Proposed 17 CFR 228.300(c)(2)(i)(C).
---------------------------------------------------------------------------
The purchaser limitations could lead to a more dispersed non-
accredited investor base or a higher proportion of accredited investors
in the investor base to the extent that the 10 percent threshold
impacts investor participation. If non-accredited investors face
investment limits, then issuers may need to solicit a greater number of
non-accredited investors, or more accredited investors, to raise the
capital they need. This could facilitate increased liquidity as there
would be more potential sellers for interested purchasers, compared to
a scenario without purchaser limitations.
There could be costs associated with investment limits. In
particular, the investment limitation could curtail potential gains for
non-accredited investors in Tier 1 and Tier 2 offerings. The investment
limits may reduce the ability of some investors to invest as much as
they would like in potentially beneficial investment opportunities and
may limit the attractiveness of the proposed fundraising exemption to
prospective issuers, thereby reducing the potential capital formation
and competition benefits. The investment limitation could result in
some issuers needing to solicit a greater number of investors or to
solicit additional accredited investors, which could lead to additional
costs for those issuers or limit capital formation if they are unable
to attract additional investors.
Rule 300(c) would provide that, other than solicitation of interest
communications pursuant to Rule 304 (i.e., testing the waters), no
offer of securities may be made unless an offering statement has been
filed with the Commission.\511\ This would result in greater costs for
issuers compared to some existing offering exemptions (e.g., Regulation
D) which do not require issuers to abstain from making an offer until a
certain form is filed with the Commission. With respect to sales, the
rule would provide that no sale of securities may be made until the
offering statement has been qualified,\512\ which could result in
issuers missing out on favorable market conditions (e.g., strong
investor interest in the issuer or its securities) while waiting for
the offering to be qualified.
---------------------------------------------------------------------------
\511\ Proposed 17 CFR 228.300(c)(1).
\512\ Proposed 17 CFR 228.300(c)(2)(i)(A).
---------------------------------------------------------------------------
The ability to rely on investor representations should help
mitigate potential costs that issuers could otherwise incur to comply
with the investment limitation provisions.
c. Continuous or Delayed Offerings
The proposed fundraising exemption would permit continuous and
delayed offerings including selling securityholders, as described in
Rule 300(c)(3)(i). Rule 300(c)(3)(i)(F) would allow issuers to
undertake continuous offerings that may continue for a period of more
than 30 calendar days from the date of initial qualification (if
offered in an amount that, at the time the offering statement is
qualified, is reasonably expected to be offered and sold within two
years from the initial qualification date). This would benefit issuers
by allowing them to offer and sell securities over time, as permitted
in continuous offerings, to raise capital. The magnitude of this
benefit for issuers is likely large.
Additionally, the ability to conduct continuous or delayed
offerings would benefit issuers because they would allow selling
securityholders to participate in offerings qualified under the
fundraising exemption, subject to the limitations on offering amount in
proposed Rule 300(a), thus facilitating liquidity for existing
securityholders and new investors in the offering. Also, permitting
selling by insiders in offerings under the proposed exemption could
facilitate a more widespread distribution of the subject crypto assets,
which may help issuers fulfill their representations and promises under
the covered investment contract, including, for example, more
efficiently meeting decentralization targets.
The ability to conduct continuous or delayed offerings under the
fundraising exemption may generate costs for issuers and investors. For
example, allowing selling by insiders in such offerings could diminish
their incentives to work towards developing and finalizing the
functionality of the associated crypto network or associated crypto
application, thus creating costs for investors in terms of lower value
of covered investment contracts. Some of these costs would be mitigated
by the limitations placed on holders of covered investment contracts in
Rule 300(a) and the principles-based disclosure requirement regarding
management of the issuer, related persons of the issuer, and conflicts
of interest and related person transactions involving the issuer in
Rule 103(b)(4).
d. Confidential Treatment
Proposed Rule 300(d) would provide that a request for confidential
treatment may be made under 17 CFR 230.406 for information required to
be filed, and 17 CFR 200.83 for information not required to be filed.
This proposed rule would benefit issuers by allowing them to keep
potentially sensitive information from being disclosed to their
competitors, which may negatively affect their competitive advantages.
[[Page 54584]]
e. Testing the Waters Provision
The proposed rules would allow the issuers relying on the
fundraising exemption to make non-binding solicitations of interest,
indications of interest, and similar communications (``testing the
waters'') prior to qualification of the offering statement. Allowing
these communications would enable issuers of covered investment
contracts to determine market interest in their securities before
incurring the costs of preparing and filing an offering statement. If,
after testing the waters, the issuer of covered investment contracts is
not confident that it would attract sufficient investor interest, this
issuer could consider alternate methods of raising capital and thereby
avoid the costs of an unsubscribed or under-subscribed offering.
Allowing testing the waters at any time prior to qualification of the
offering statement, rather than only prior to filing of the offering
statement with the Commission, may increase the likelihood that the
issuer will raise the desired amount of capital. This option may be
useful for smaller issuers of covered investment contracts, especially
early-stage issuers, first-time issuers, and other issuers with a high
degree of information asymmetry, for which an unsuccessful offering
could result in being unable to raise the needed capital and incurring
additional expenses.
Expanding the permissible use of testing the waters communications
could also increase the type and extent of information available to
investors, which could lead to more efficient prices for the offered
covered investment contracts. The proposed rules would permit testing
the waters for an expanded period, from the moment an issuer decides to
approach investors to the offering qualification. Further, requiring
issuers using testing the waters solicitations after the offering
statement is publicly filed to provide the offering statement with the
testing the waters materials (or provide information about where it can
be accessed), and to update it and redistribute updates in the event of
material changes, would allow investors to make better informed
investment decisions. For example, investors could glean important
information regarding the progress of the offering before and after the
offering statement is publicly filed that may affect their decision of
whether and how much to invest in the offering. This feature of the
exempt framework has proved useful for Regulation A issuers. For
example, on average 37 percent of qualified Regulation A offerings from
2015 through 2024 used testing the waters communications. There was a
greater reliance (approximately 47 percent) on the provision for larger
qualified offerings (i.e., those with over $1 million of
proceeds).\513\
---------------------------------------------------------------------------
\513\ See Angela Huang, Analysis of the Regulation A Market: A
Decade of Regulation A (May 2025), available at https://sec.gov/files/dera-reg-2505.pdf.
---------------------------------------------------------------------------
We estimate compliance costs per issuer associated with the
fundraising exemption to be $973,145.12.\514\ These costs include
burdens associated with several proposed rules that are relevant to the
fundraising exemption and are described in more detail above.
---------------------------------------------------------------------------
\514\ The $973,145.12 estimate is the sum of $959,111.62 +
$14,033.50. The $959,111.62 estimate is based on the following
calculations: 1,510.412 burden hours per response x $635 per hour
for information collections attributable to Form 1-CRYPTO, Form 1-
KC, Form 1-SC, Form 1-UC. See infra section V.C.2 (PRA analysis).
The $14,033.50 estimate is based on the following calculations: 22.1
burden hours per response x $635 per hour for information
collections attributable to Rules 305(c) and 305(d) and the burdens
associated with Form ID. See infra section V.C.3.c (PRA analysis).
---------------------------------------------------------------------------
4. Benefits and Costs of the Proposed Investment Contract Safe Harbor
Under proposed Rule 400, a covered investment contract would be
deemed to have ceased to exist, and the crypto asset that was subject
to the covered investment contract would be deemed not to constitute or
represent or to be subject to that investment contract for purposes of
Securities Act section 2(a)(1) \515\ and Exchange Act section
3(a)(10),\516\ if certain conditions are satisfied. Rule 400 is
intended to codify the Commission's view articulated in the 2026
Interpretation on when a covered investment contract ceases to exist.
In addition, we are providing further clarity in this release on what
types of actions would not constitute essential managerial
efforts,\517\ which will provide additional certainty to issuers of
covered investment contracts who are trying to satisfy the conditions
set forth in proposed Rule 400(a). The investment contract safe harbor
would be available to any issuer that satisfies its conditions. Thus,
the safe harbor would be available to issuers that have utilized the
startup exemption or the fundraising exemption, once they have
satisfied the safe harbor's conditions. The safe harbor also would be
available to issuers that have not utilized these proposed exemptions.
---------------------------------------------------------------------------
\515\ 15 U.S.C. 77b(a)(1).
\516\ 15 U.S.C. 78c(a)(10).
\517\ See supra section II.A.4.b.i.
---------------------------------------------------------------------------
By codifying the Commission's view articulated in the 2026
Interpretation, the investment contract safe harbor could provide
greater certainty to both issuers and investors as to when a crypto
asset no longer is subject to an investment contract. This would make
it easier for investors to identify when covered investment contracts
would cease to exist and to make better investment decisions regarding
covered investment contracts in their portfolio. Another potential
benefit of the safe harbor could be informing the market and investors
that the issuer believes the crypto asset is no longer subject to an
investment contract. There also could be related investor protection
benefits associated with requiring the issuer to include its
conclusions/analysis in a Commission filing. These benefits will only
be realized to the extent an issuer takes advantage of the safe harbor
rather than relying on the 2026 Interpretation.
For issuers that already have filed a Form TR under the startup
exemption or the fundraising exemption, there would be no incremental
costs from this requirement. For issuers that have not utilized these
proposed exemptions, we estimate compliance costs per issuer associated
with filing proposed Form TR under the investment contract safe harbor
to be $19,431.\518\
---------------------------------------------------------------------------
\518\ The $19,431 estimate is based on the following
calculations: 30.6 burden hours per response x $635 per hour for the
information collection attributable to Rule 400(b) and the burdens
associated with Form ID. See infra section V.B.1.d.iii (PRA
analysis).
---------------------------------------------------------------------------
5. Benefits and Costs of the Proposed Preemption of State Registration
and Qualification Requirements
Proposed Rule 500 would set forth a new definition of ``qualified
purchaser.'' The proposed definition would provide that a ``qualified
purchaser'' includes any person to whom securities are offered or sold
pursuant to an offering under Regulation Crypto Assets or an offering
pursuant to a transaction by any person other than an issuer,
underwriter, or dealer with respect to a covered investment contract;
provided that: (1) the issuer has satisfied the requirements of an
exemption under Regulation Crypto Assets with respect to such covered
investment contract; and (2) the issuer remains subject to, and is
current with respect to, such exemption's disclosure and filing
requirements and/or periodic reporting obligations, as applicable.
Thus, the proposed rule would preempt State securities laws
registration and qualification requirements with respect to the initial
sales of covered investment contracts under Regulation Crypto Assets
and certain resales of covered investment contracts.
The proposed preemption of State securities law registration and
qualification requirements for primary
[[Page 54585]]
offerings would eliminate the burden of responding to multiple reviews
for the same offering, thus leading to a more streamlined offering
process. There are several U.S. jurisdictions, comprising the 50
states, the District of Columbia, and the U.S. territories.\519\ Each
jurisdiction may have its own requirements, which typically include:
(i) filing State administrative forms and other paperwork necessary for
compliance with State registration requirements; (ii) adhering to
disclosure standards; and (iii) in some states, requirements based upon
the merits of the offering or issuer (which may conflict with each
other).\520\ We do not have updated data to estimate costs of complying
with Blue Sky laws, however, in a previous rulemaking the Commission
received an estimate that an issuer seeking State registration in 50
states would incur $80,000 to $100,000 in legal fees.\521\ Also, State
filing requirements are not tailored to crypto asset projects, so it
may be costly or impossible for issuers to attempt to comply with each
State's rules.
---------------------------------------------------------------------------
\519\ Uniform Securities Acts, N. Am. Sec. Adm'rs Assoc.,
available at https://nasaa.org/industry-resources/uniform-securities-acts/.
\520\ See, e.g., Stuart R. Cohn, Securities Counseling for Small
and Emerging Companies, Merit Review Sec. 12:8 (2025-6) (describing
merit review as ``the authority of state administrators to deny,
suspend or revoke an offering because the administrator believes
that the offering has substantive weaknesses in structure, financial
strength or fairness to investors''). Not every state has the
traditional ``unfair, unjust or inequitable'' merit review standard,
or its equivalent. Nor do states apply standards with equal rigor.
Id.
\521\ 2015 Regulation A Release at 21886.
---------------------------------------------------------------------------
As with preemption of State registration and qualification
requirements for primary offerings under Regulation D and Regulation
Crowdfunding, preemption of State registration and qualification
requirements for primary offerings under the proposed offering
exemptions would likely reduce covered investment contract issuers'
time and compliance costs, thus making it cheaper to raise capital via
the startup exemption as well as the fundraising exemption. A 2012 GAO
report found that compliance with State securities registration and
qualification requirements was one of the factors that appeared to have
influenced the infrequent use of the original Regulation A by small
businesses, before the Commission preempted State registration and
qualification requirements for purchasers in Tier 2 Regulation A
offerings in 2015.\522\ Similarly, a whitepaper showed that Regulation
D issuers seeking to raise up to $1 million and up to $5 million
overwhelmingly rely on Rule 506(b) (pursuant to which State
registration and qualification is preempted) even though such amounts
could be raised (without such preemption) under Rule 504 and (since
rescinded) Rule 505 of Regulation D.\523\ In particular, with respect
to covered investment contracts, we anticipate that issuers would
likely rely on the proposed exemptions to conduct offerings across
multiple states to facilitate the development of decentralized networks
across jurisdictions.\524\ Complying with Blue Sky laws across 54 U.S.
jurisdictions could increase costs significantly and could deter
issuers from otherwise using the proposed exempt offerings.\525\
---------------------------------------------------------------------------
\522\ See U.S. Gov't Accountability Off., Factors That May
Affect Trends in Regulation A Offerings, GAO-12-839 (July 2012),
available at http://www.gao.gov/assets/600/592113.pdf (the ``GAO
Report''). The GAO Report also cites other factors that may have
discouraged issuer use of the Regulation A exemption, including a
comparatively low $5 million offering limitation, a slow and costly
filing process associated with Commission qualification, and the
availability of other exemptions under the Federal securities laws.
\523\ See Scott Bauguess et al., Capital Raising in the U.S.: An
Analysis of the Market for Unregistered Securities Offerings, 2009-
2017 at 2 (SEC, DERA White Paper, Aug. 2018), available at https://sec.gov/files/dera-white-paper_regulation-d_082018.pdf.
\524\ See supra section II.E.1.
\525\ See 2015 Regulation A Release at 21886.
---------------------------------------------------------------------------
In addition, unlike Regulation D and Regulation Crowdfunding, the
proposed exemptions would preempt State registration and qualification
for secondary trading. Absent preemption for secondary trading, issuers
of covered investment contracts would need to comply with State law
registration and qualification requirements applicable to resales in
every jurisdiction in which such resales occur, which could result in
significant compliance costs and potentially reduce the number of
jurisdictions in which secondary trading occurs.\526\ As one commenter
explained, without preemption, secondary trading is ``subject to a
patchwork of manual exemption regimes that vary state-by-state''
resulting in ``a fragmented and opaque system that places unnecessary
burdens on issuers, investors, broker-dealers, and trading platforms.''
\527\ Moreover, existing State law requirements for secondary trading
may be outdated and ill-suited for issuers of covered investment
contracts.\528\ Preempting State registration and qualification
requirements for secondary trading would help facilitate the
unrestricted sale and purchase of covered investment contracts across
jurisdictions. This in turn would facilitate the success of the
associated crypto network or application, which often depends on the
extent to which the crypto asset is widely held and used.\529\
---------------------------------------------------------------------------
\526\ Thompson Reuters, Blue Sky Laws: Registration of
Securities Transactions Exempt from Registration Under State
Securities Regulations, 50 State Regulatory Surveys (July 2025). The
majority of states have some form of exemption from State
registration and qualification requirements for secondary trading.
Some states have a Manual Exemption, others have other types of
exemptions for secondary trading, and some states do not have any
exemption for secondary trading. Id.
\527\ Letter from GUARDD.
\528\ See letter from CrowdCheck Law.
\529\ See supra section I.
---------------------------------------------------------------------------
Preemption of secondary sales may also lower offering costs because
investors may be less likely to demand liquidity discounts. For covered
investment contract issuers that decide to rely on any of the proposed
exemptions and at the same time use other exemptions without preemption
(such as Securities Act section 4(a)(2), Securities Act section
3(a)(11), or Rule 504 of Regulation D) to raise capital, the proposed
State securities law preemption would lower the cost of those offerings
as well, because secondary market transactions involving the covered
investment contracts sold pursuant to those existing exemptions also
would be preempted by the proposed rule if the issuer has also
satisfied the requirements of an exemption under Regulation Crypto
Assets, and the issuer remains subject to and current with respect to
such exemption's disclosure and filing requirements and/or periodic
reporting obligations. In addition, to the extent that the proposed
preemption of State securities registration and qualification
requirements for certain resales results in active secondary trading,
it might promote enhanced price discovery and greater informational
efficiency of covered investment contract prices.\530\
---------------------------------------------------------------------------
\530\ See supra section IV.B.1.e.
---------------------------------------------------------------------------
The proposed preemption of State securities registration and
qualification requirements could also benefit investors in covered
investment contracts because the issuers' cost savings from not having
to register or qualify their offerings with State regulators ultimately
may be utilized to complete the issuers' essential managerial efforts.
Further, by extending the preemption of State registration and
qualification requirements to certain resales of covered investment
contracts, the proposed rule also would benefit investors in covered
investment contracts through potentially enhanced liquidity. To the
extent that easier resales may draw additional investors, this may
increase interest in primary
[[Page 54586]]
offerings of covered investment contracts where the issuer satisfied
the requirements of an exemption under the proposed rules, and remains
subject to, and is current with, such exemption's disclosure and filing
requirements and/or periodic reporting obligations. Also, the
preemption of State registration and qualification requirements to
resales would benefit investors because they would not have to comply
with or look for an exemption from State registration/qualification
requirements for resales, thus potentially lowering compliance costs
for them. Finally, investors may be harmed if issuers exclude their
home State due to the costs of compliance in that particular State.
We recognize that the proposed preemption of State registration and
qualification requirements may remove an additional layer of investor
protection provided by their review process. These may include
additional investor protections arising from the resources of State
regulators that may aid in detecting fraud and facilitating issuer
compliance. In addition, merit-based review of offerings undertaken by
some States may, in some cases, provide a level of investor protection
different from the disclosure-based review undertaken by Commission
staff.\531\ States will, however, retain jurisdiction to bring
antifraud enforcement actions.\532\ Covered investment contract issuers
may face a higher cost of capital if investors perceive increased
investment risk as a result of preemption. These potential costs,
however, could be mitigated by certain proposed investor protection
requirements, including requirements for public disclosure (including
ongoing, periodic reporting); investment limits; offering limits; a
maximum, four-year offering duration under the startup exemption;
issuer eligibility requirements; and disqualification provisions.
---------------------------------------------------------------------------
\531\ But see, e.g., Susanna Kim Ripken, Paternalism and
Securities Regulation, 21 Stanford J. of L., Bus. & Fin. 1, 41
(2015) (``Merit regulation, as adopted by the states, blocks
investors from purchasing securities deemed too risky by state
administrators. Such paternalistic interference with investors'
access to certain securities is unnecessary and inhibits capital
markets.'').
\532\ See 15 U.S.C. 77r(c)(1).
---------------------------------------------------------------------------
C. Effects on Efficiency, Competition, and Capital Formation
1. Effects on Efficiency
The proposed rules would likely lead to improvements in efficiency
as they would facilitate a distribution of crypto assets in compliance
with the Federal securities laws. To the extent such distribution
constitutes an offer or sale of a covered investment contract, the
proposed rules would provide tailored exemptions that address the key
shortcomings of existing offering exemptions vis-a-vis covered
investment contracts and include investor protection features. The
proposed exemptions would enhance efficiency by enabling issuers of
covered investment contracts to rely on and fund economic incentives
that are essential for the development and functioning of their
associated crypto networks or associated crypto applications. The
proposed rules would allow issuers to more efficiently and quickly
develop, and incentivize the development of, the functionalities of
their associated crypto networks or associated crypto applications.
Additionally, the proposed rules would also enable networks to take
root that otherwise would not have been able to, further enhancing
efficiency.
Also, issuers of covered investment contracts may be able to
optimize their financing strategy, resulting in a lower cost of capital
or more timely access to financing. The proposed rules are intended to
facilitate the offering process and entry into capital markets for
issuers that find existing exemptions to be too costly or inadequate
for their funding needs, or otherwise not fit for purpose. To the
extent that those issuers raise capital at lower costs than they
otherwise could, the proposed rules would generate efficiency gains for
them.
In addition, if issuers' covered investment contracts represent
valuable projects not found elsewhere in the capital markets, adding
them to the investment choices, particularly for non-accredited
investors, may result in more efficient capital allocation in investor
portfolios, and more efficient matching between investors and companies
seeking capital. This will allow investors with various risk
preferences to invest in the offerings best suited to their risk
tolerance, thus potentially improving allocative efficiency.
Requiring ongoing disclosures under the fundraising exemption, and
requiring the issuers relying on the startup exemption to make certain
information publicly accessible, free of charge and to periodically
amend that information to reflect material changes, would provide
investors with important information, allowing them to identify
investment opportunities best suited for their level of risk tolerance
and re-evaluate the issuer's prospects over time, resulting in better
informed investment decisions and improved allocative efficiency of
capital. By requiring issuers to file these disclosures on EDGAR and/or
on a publicly available website, the proposed rules could make it
easier for investors to collect and compare information across issuers,
both within and outside of the market for covered investment contracts.
The proposed disclosure requirements also could improve
informational efficiency in the market, making it easier for investors
to identify a broader and more diverse range of covered investment
contract offerings and allocate capital more efficiently. The net
effect could be to enhance both capital formation and allocative
efficiency. Additionally, the required disclosures would provide
investors with a useful benchmark to evaluate other crypto asset
issuers both within and outside of the covered investment contract
market.\533\ Also, disclosure by covered investment contract issuers
relying on the proposed rules could inform financial markets more
generally by providing information about new trends and products in the
crypto asset industry, thus creating externalities that benefit other
types of investors and issuers.
---------------------------------------------------------------------------
\533\ See Christian Leuz & Peter Wysocki, Economic Consequences
of Financial Reporting and Disclosure Regulation: A Review and
Suggestions for Future Research (working paper Mar. 13, 2008),
available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1105398 (retrieved from SSRN Elsevier
database).
---------------------------------------------------------------------------
In addition, to the extent that the proposed rules result in active
trading, it might promote enhanced price discovery and greater
informational efficiency of covered investment contract prices.
2. Effects on Competition
If the proposed rules improve access to, or lower the cost of,
capital for issuers of covered investment contracts and strengthen
their ability to develop and launch their crypto projects, the proposed
rules may enhance competition among issuers for developing product
market applications of their crypto assets, thus spurring innovation
and entrepreneurship. To the extent that more issuers of covered
investment contracts use the proposed rules for capital raising, the
proposed rules may also promote competition among eligible issuers in
the market for investor capital. The proposed rules may also promote
competition between smaller and larger issuers of covered investment
contracts by lowering capital-raising costs for smaller issuers.
To the extent that more investors decide to invest in covered
investment
[[Page 54587]]
contracts as a result of a greater number of covered investment
contract offerings under the proposed rules, competition among these
investors could increase, potentially generating cost savings for
issuers relying on the startup and fundraising exemptions. The
magnitude of the effect would depend on the number of investors that
would be attracted to invest in covered investment contracts that may
be offered under the proposed rules, as well as the number of issuers
relying on the proposed rules.
3. Effects on Capital Formation
The proposed rules would introduce new exemptions that would
facilitate capital formation by issuers of covered investment contracts
because they are tailored to accommodate covered investment contracts.
For example, the exemptions available under the proposed rules are
intended to reduce certain burdens identified by commenters and others
with respect to covered investment contract offerings under existing
exemptions. The proposed rules also would set forth exemptions with
various offering amount limits and tailored disclosure requirements.
Thus, the availability of the new exemptions under the proposed rules
could attract new issuers of covered investment contracts to the
capital markets.
Additionally, the availability of the proposed exemptions could
result in issuers of covered investment contracts switching from
existing exemptions to the proposed exemptions. These issuers may be
able to raise more capital under the proposed exemptions as compared to
what they could raise under the existing exemptions. The proposed
rules, therefore, would likely increase capital formation. By
facilitating capital raising by issuers of covered investment
contracts, the proposed rules would further enable these issuers to,
among other things, finance the development of their crypto projects
and the delivery of their products and services to potential users, as
well as pursue projects that would have been forgone due to a lack of
capital.
The impact of the proposed rules on an issuer's ability to raise
capital will depend on whether new investor capital is attracted to the
crypto asset markets and on whether investors reallocate existing
capital among various types of offerings. Investor demand for covered
investment contracts would depend on the expected risk, return, and
liquidity of the offered securities and, in particular, on how these
characteristics compare to what investors can obtain from securities in
other exempt offerings and in registered offerings. Investor demand
also would depend on whether the disclosure requirements in the
proposed rules are sufficient to enable investors to evaluate the
characteristics of offerings involving covered investment contracts.
Increased secondary market liquidity resulting from some of the
features of the proposed rules (e.g., the ability of issuers to sell
unrestricted securities) could make covered investment contracts more
attractive to prospective investors and encourage them to invest in
such securities, thus promoting capital formation. As previously
explained in section IV.B.1, there also may be significant benefits for
capital formation from the ongoing reporting requirements of the
fundraising exemption which could generate sufficient information for
secondary markets to provide the intended liquidity benefits.
If, on the other hand, some issuers that are currently relying on
existing exemptions decide that the proposed rules are advantageous
ways for them to raise capital (e.g., with respect to cost and/or
access to potential investors), they could structure some or all of
their offerings to involve covered investment contracts and thus take
advantage of the proposed rules. This could lead to issuers switching
from some existing offering exemptions to the proposed startup and
fundraising exemptions included in the proposed rules. Such switches
could still enhance capital formation since they could allow issuers to
raise more capital, or achieve a lower cost of capital, than they could
under the existing exemptions they were using. It is also possible that
such issuers would continue to use some of the existing exemptions
(e.g., to fund their non-crypto asset businesses) and decide to use the
exemptions under the proposed rules to raise additional capital at
potentially lower cost and/or from a different pool of investors. This
could lead to an increase in capital formation.
D. Reasonable Alternatives
1. General Rules
a. Use More Prescriptive Disclosure Requirements
Proposed Rule 103 would set forth principles-based disclosure
requirements with respect to offerings of covered investment contracts.
We could have proposed more prescriptive disclosure requirements
instead. One benefit of a more prescriptive disclosure approach for
investors is that it could result in potentially more precise and
complete disclosures for investors, since such an approach usually
relies on bright lines to determine whether and what type of disclosure
is required. Another potential benefit associated with the prescriptive
disclosure approach is that it could improve comparability across
issuers and transactions because issuers would be required to report
similar information using the same metrics, procedures, or mechanisms.
This could be especially beneficial to retail investors who may not
have the resources or ability to evaluate information based on
different metrics or on alternative sources, which could be the case
under the proposed principles-based disclosure. A more prescriptive
approach could also benefit issuers by potentially reducing the cost to
provide the required disclosures. Specifically, an issuer could look to
the bright line requirements when determining whether disclosure is
necessary and may not need to spend the time and resources involved in
applying judgment as to the materiality of particular information in
the context of the issuer's overall business and financial
circumstances.
However, a more prescriptive disclosure regime would also have
costs. In particular, it would provide issuers of covered investment
contracts with less flexibility to more directly tailor their
disclosure to provide the information that is more likely to be
material to an investment decision than the principles-based disclosure
we propose. Additionally, a prescriptive approach may result in
disclosure of immaterial information that is not useful to investors in
covered investment contract offerings as compared to a principles-based
approach.
b. Restricted Securities
The proposed startup and fundraising exemptions would allow issuers
to offer and sell unrestricted covered investment contracts.
Alternatively, we could have proposed that covered investment contracts
offered and sold under these exemptions would be restricted securities.
One benefit from this alternative would be potentially stronger
investor protection: categorizing securities as restricted securities
is intended to protect investors from situations where the reseller may
be participating in an unregistered distribution on behalf of the
issuer and the subsequent investors would not have the protections of a
registered offering. Such an alternative, however, could present some
significant costs for issuers and investors. First, restrictions on
resale would make it more difficult for investors as well as
[[Page 54588]]
potential users of the crypto asset to obtain the subject crypto asset,
thus slowing down or limiting potential network effects, which are key
for the completion of an issuer's associated crypto network and
associated crypto application. Second, it would significantly decrease
the liquidity of these securities and make them less attractive to
potential investors. Purchasing restricted covered investment contracts
could lead to fewer investors interested in an offering under this
alternative, as compared to an offering pursuant to which they receive
unrestricted securities. Third, if investors in an offering were to
obtain illiquid securities, then they would likely require a discount
to the fair price of these securities to compensate them for their
limited ability to trade in these securities. Such an illiquidity
discount at the time of initial purchase would increase the issuers'
cost of capital raising, thus making it more costly and time-consuming
to raise the needed amount of capital.
c. Related Person Holdings
Proposed Rule 103(b)(4) would require the issuer to disclose, among
other things, whether related persons are subject to any transfer or
resale restriction(s) with respect to the covered investment contract
or subject crypto asset and, if so, to provide a description of the
material terms of such restriction(s). Alternatively, we could have
proposed, as a condition to an issuer relying on the startup exemption
or the fundraising exemption, that the issuer implement policies and
procedures reasonably designed to ensure that a minimum period (e.g.,
one year) elapses between the date on which a related person acquires a
subject crypto asset from the issuer, or from an affiliate of the
issuer, and any resale of the subject crypto asset by such related
person.
Such an alternative could benefit potential investors by
strengthening investor protection. There are typically two primary
concerns associated with sales by insiders. One is in connection with
the information asymmetry between an insider and outside investors. In
particular, a selling insider is likely to have an informational
advantage over outside investors.\534\ The other concern is the
alignment of incentives. With respect to insiders, it is often argued
that the incentives of company management are better aligned with other
shareholders when managers hold a significant equity interest in the
company.\535\ Thus, insiders retaining a stake in the covered
investment contracts can signal an alignment of incentives with outside
investors.\536\ This alignment serves as a commitment mechanism that
indicates to investors that insiders are committed to the success of
the company. With respect to ICO offerings, prior economic studies find
that ICOs are more successful--have lower failure rates and/or higher
future employment--when the insiders have a lockup/vesting period for
the sale of their tokens.\537\ A divestiture of the ownership stake by
an insider may, therefore, exacerbate agency conflicts, which suggests
that large insider sales can be detrimental to current and future
investors.
---------------------------------------------------------------------------
\534\ See David Easley & Maureen O'Hara, Information and the
Cost of Capital, 59 J. Fin. 1553 (Aug. 2004).
\535\ See Michael C. Jensen & William H. Meckling, Theory of the
Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3
J. Fin. Econ. 305 (Oct. 1976).
\536\ See John E. Core, et al., Corporate Governance, Chief
Executive Officer Compensation, and Firm Performance, 51 J. Fin.
Econ. 371 (Mar. 1999); Hamid Mehran, Executive Compensation
Structure, Ownership, and Firm Performance, 38 J. Fin. Econ. 163
(June 1995).
\537\ See Howell, et al., supra note 401; Davydiuk Study supra
note 430.
---------------------------------------------------------------------------
We recognize, however, that there are benefits to be realized from
permitting insiders, such as company founders and employees,
flexibility regarding resales of covered investment contracts. Because
most insiders typically consider available exit options before
participating in a new venture, not restricting secondary sales
increases their incentives to make the original investment, which may
promote innovation and business formation.\538\ Not restricting related
person sales could also facilitate efficient reallocation of capital
and talents of entrepreneurs to new ventures.\539\ Additionally, an
exit of a large insider could potentially result in a broader base of
investors.
---------------------------------------------------------------------------
\538\ See Douglas J. Cumming & Jeffrey G. MacIntosh, Venture-
Capital Exits in Canada and the United States, 53 U. Toro. L. J. 101
(2003).
\539\ See Junfu Zhang, The Advantage of Experienced Start-Up
Founders in Venture Capital Acquisition: Evidence from Serial
Entrepreneurs, 36 Small Bus. Econ. 187 (2011). See also Paul
Gompers, et al., Skill vs. Luck in Entrepreneurship and Venture
Capital: Evidence from Serial Entrepreneurs, (Nat'l Bureau of Econ.
Rsch., Working Paper No. 12592, Oct. 2006), available at https://nber.org/system/files/working_papers/w12592/w12592.pdf.
---------------------------------------------------------------------------
Thus, the proposed disclosure requirement regarding related person
resale or transfer restrictions is intended to address concerns
associated with sales by insiders by giving investors the information
they need to determine whether there are risks associated with the
issuer's related persons and, if so, whether the issuer has taken
appropriate steps to mitigate those risks. Instead of requiring a
holding period or imposing transfer restrictions, the proposed approach
would allow issuers the flexibility to decide whether to adopt any
policies and procedures to address the potential risks associated with
sales by related persons. This could reduce compliance costs.
d. Disqualification Provisions
Under the proposed Rule 104, the disqualification provisions in
Rule 262 would not apply with respect to any conviction, order,
judgment, decree, suspension, expulsion, or bar that occurred or was
issued before the date on which Rule 104 becomes effective, if the rule
ultimately is adopted. Rule 104 would require, however, the issuer to
include in an offering circular or otherwise furnish to each purchaser,
a reasonable time prior to sale, a description in writing of any
matters that would have triggered disqualification under Rule 104 but
occurred before the date on which Rule 104 becomes effective.
As an alternative, we could have specified that pre-existing events
are subject to the disqualification rules. This would strengthen
investor protection because it would expand the list of disqualifiable
events. At the same time, it would increase the compliance costs for
issuers.
As another alternative, we could have narrowed the disqualification
provisions. For example, rather than disqualifying an issuer if it or
one of the enumerated affiliated persons had been convicted of certain
misdemeanors within the preceding 10 years (or five years, with respect
to issuers, their predecessors, and affiliated issuers), we could
instead limit the lookback period for such conviction to the period
during which any resulting penalties apply. This could diminish
compliance with costs for issuers but negatively impact investor
protection.
Overall, we believe that preserving consistency with the
disqualification criteria of Rule 262, as we do in the proposed rules,
can potentially yield compliance cost savings for issuers that would
rely on the proposed rules while still maintaining appropriate investor
protections. Additionally, the proposed requirement that issuers
include in an offering circular or otherwise furnish to each purchaser,
a description in writing of any matters that would have triggered
disqualification but occurred before the date on which Rule 104 becomes
effective would provide important information for investors regarding
issuers' prior misconduct.
[[Page 54589]]
2. Startup Exemption
a. Time Period
The proposed startup exemption would be available to issuers for a
period of four years. As an alternative, we could have proposed that
the exemption be available without any time period attached. Such an
alternative could benefit issuers by allowing them more time during
which to use covered investment contracts to raise capital and finalize
the development of their associated crypto networks and associated
crypto applications. Eliminating the time requirement, however, may
dissuade investors from participating in an offering because issuers
may have less of an incentive to develop their associated crypto
networks and applications because they could rely on the exemption for
an unlimited amount of time.
As another alternative, we could have included a shorter period
(e.g., two years or three years) for issuers to rely on the proposed
startup exemption. This approach could incentivize issuers to expedite
the development of their associated crypto networks and associated
crypto applications. However, it may also introduce significant costs
to issuers by forcing them to incur significant expenses (e.g., raising
capital in short time periods, providing incentives for potential users
to join the crypto network) to complete their associated crypto
networks and associated crypto applications prematurely to meet the
requirements of the proposed exemption.
As another alternative, we could have included a longer period
(e.g., five years) for issuers to rely on the proposed startup
exemption. This alternative would allow issuers more time during which
to use covered investment contracts to raise capital and finalize the
development of their associated crypto networks and associated crypto
applications. A potential cost of this alternative, however, may be
decreased interest because issuers could take more time to develop
their associated crypto networks and associated crypto applications.
b. Offering Limits
The proposed startup exemption would allow issuers to raise up to
$5 million for the duration of the four-year period by issuing covered
investment contracts without registration under the Securities Act. As
an alternative to the proposed offering limit, we could have made the
offering limit larger, such as $10 million. This would be commensurate
with what is provided for by other exempt offerings geared toward
smaller issuers, such as Rule 504 of Regulation D. A larger offering
limit could make capital raising under the startup exemption more cost
effective and attractive to issuers, resulting in potential favorable
effects on capital formation and competition. The increase in the
maximum offering size could also make the startup exemption attractive
to a broader range of issuers, including larger issuers. This could
provide investors with a broader range of investment opportunities in
the market for covered investment contracts and potentially result in a
more efficient allocation of investor capital. A potential cost of such
an alternative may be erosion of investor protection if issuers were
allowed to raise significantly more capital without providing
additional disclosures like in the proposed fundraising exemption. As
mentioned above, the startup exemption would provide issuers with
temporary relief from Securities Act registration requirements--during
which time they may work towards fulfilling the essential managerial
efforts they represented or promised investors they would engage in
under the covered investment contract--while, at the same time,
ensuring that investors remain sufficiently protected and informed.
Issuers seeking to raise larger amounts of capital may avail themselves
of the fundraising exemption.
As another alternative, we could have proposed a smaller offering
limit, such as $1 million. A potential benefit of such an alternative
may be enhancement of investor protection to the extent that issuers
would be allowed to raise less capital if they do not provide
additional disclosures like in the proposed fundraising exemption. A
smaller offering limit could make capital raising under the startup
exemption more costly to issuers, resulting in negative effects on
capital formation and competition. The lower maximum offering size
could also make the startup exemption less attractive to a broader
range of issuers, including larger issuers.
c. No Capital Raising
As an alternative, we could have proposed the startup exemption
without the possibility of raising capital. Such an alternative would
be beneficial to issuers because it would allow issuers relying on the
exemption to perform the tasks needed to develop, test, and launch
their projects with increased certainty about the application of the
registration requirements of section 5 of the Securities Act to their
projects and with requirements that are tailored to covered investment
contracts and their issuers. Issuers that need capital to develop,
test, and launch their projects would be able to rely on the proposed
fundraising exemption or existing offering exemptions. Additionally,
issuers could rely on such an alternative to engage in offerings of
covered investment contracts in exchange for, in recognition of, or as
incentive for past or future use of an associated crypto network or
associated crypto application, or as a reward or incentive for
conducting activities primarily related to operating, governing, or
securing an associated crypto network or associated crypto application.
Such an alternative, however, would generate costs for issuers because
it would not allow them to raise, when needed, a modest amount of
capital ($5 million) at a lower cost compared to raising the same
amount by relying on the proposed fundraising exemption or existing
offering exemptions.
3. Fundraising Exemption
a. Levels of Periodic Reporting for Tier 1 Offerings Versus Tier 2
Offerings
Under the proposed fundraising exemption, issuers who have
qualified Tier 1 offerings would be subject to ongoing reporting
requirements. Alternatively, we could have proposed ongoing reporting
only for issuers who raise capital via Tier 2 offerings (as in
Regulation A). Such an alternative would have decreased compliance
costs as well as other costs associated with providing ongoing
disclosures for Tier 1 issuers. That would be especially beneficial to
smaller issuers, which are more likely to rely on Tier 1 offerings for
capital raising. We believe, however, that requiring ongoing and
periodic reporting for all issuers under the proposed fundraising
exemption is appropriate given that an issuer's ongoing efforts to
develop its associated crypto network or associated crypto application
are directly relevant to the value of the covered investment contract
and the subject crypto asset. Further, and unlike the rationale for
excepting Tier 1 issuers under Regulation A from ongoing reporting, we
do not anticipate that Tier 1 issuers using the proposed rule will be
conducting offerings that are more local in nature than Tier 2
offerings, and we do anticipate that there may be secondary markets for
the securities issued in Tier 1 offerings. Lastly, the proposed
preemption of State registration and qualification requirements would
apply to Tier 1 offerings as well, which supports providing investors
with ongoing disclosures. One of the benefits of
[[Page 54590]]
ongoing disclosure is that it provides relevant information to
investors that they in turn use when deciding to trade in secondary
markets. We do not believe that requiring ongoing reporting for Tier 1
issuers would impose undue costs, as these issuers would benefit from
tailored disclosure.
b. Offering Limits
Rule 300(a) would permit Tier 2 offerings of up to $75 million in a
12-month period without registration under the Securities Act.
Alternatively, we could have set a lower or higher offering limit for
Tier 2 offerings. For example, we could have proposed a $50 million
offering limit. A lower offering limit of $50 million may offer
enhanced investor protection benefits--it would increase the overall
amount of securities being offered to the general public that are
subject to initial and ongoing disclosure requirements that are more
extensive than the requirements for some existing offering exemptions.
A potential cost of this alternative would be the inability of some
crypto asset issuers to raise enough capital needed for the development
of their associated crypto networks or associated crypto applications.
We believe a higher offering limit is appropriate with respect to
offerings of covered investment contracts. Limiting the fundraising
exemption to offerings of covered investment contracts coupled with the
other issuer eligibility criteria discussed above sufficiently
mitigates investor risks.
Alternatively, we could have proposed a higher offering limit
(e.g., $150 million). Such an alternative would benefit issuers of
covered investment contracts since it would allow them to raise
significant amounts of capital at lower cost compared to some other
offering exemptions. They could use this capital for the development of
their subject crypto asset, associated crypto networks, and associated
crypto applications. Such an alternative, however, may have
implications for investor protections given that the proposed
disclosure is similar to that in Regulation A, which allows issuers to
raise up to $75 million.
4. Investment Contract Safe Harbor
a. Time Limit
The proposed investment contract safe harbor does not impose a time
limit on when an issuer must complete or otherwise permanently cease
all essential managerial efforts that it represented or promised to be
eligible for the safe harbor. As an alternative, the Commission could
propose a time limit from the date of issuance, such as that used in
the proposed startup exemption. A benefit of such a time period is that
it could incentivize issuers to complete the essential managerial
efforts that they represented or promised they would engage in before
the expiration of that period. Such an alternative would also create
significant costs for issuers. For example, it could force them to rush
to complete their essential managerial efforts to be able to use the
safe harbor and achieve separation of the covered investment contract
and the subject crypto asset, incurring significant costs in the
process. There could also be costs to investors if the deadline creates
incentives for issuers to rush their efforts or take on more risk in
attempting to complete them.
b. Network Decentralization and Functionality Requirements
The proposed investment contract safe harbor would require that the
issuer of the covered investment contract has completed or otherwise
permanently ceased all essential managerial efforts that it represented
or promised it would engage in under the covered investment contract
and is not making and does not intend to make any new representations
or promises to engage in essential managerial efforts with respect to
the crypto asset. As an alternative, we could have proposed, as a
condition in Rule 400(a), a requirement that the subject crypto asset
has sufficient functionality and the associated crypto network or
associated crypto application has become sufficiently decentralized
(according to specified criteria regarding functionality and
decentralization) in order for the issuer to rely on the safe harbor.
The essential managerial efforts of issuers often are focused on
efforts to create a mature crypto asset and application. Accordingly,
Form TR could require the issuer to: (1) provide a statement that the
crypto asset has achieved the required functionality and that the
associated crypto network or associated crypto application has achieved
the required decentralization; and (2) provide an analysis
demonstrating how such functionality and decentralization was achieved.
Such requirements might benefit issuers by providing them with criteria
that might be less costly to demonstrate than those in Form TR, while
still providing a similar benefit of apprising investors, the
Commission, and other members of the public as to the status of a
subject crypto asset under the Federal securities laws as well as the
basis on which the issuer reached its conclusion. Such an alternative,
however, could result in higher costs for issuers of covered investment
contracts relative to those under the proposed investment contract safe
harbor. Because the disclosure requirements would be different than
those in Form TR, issuers availing themselves of the startup exemption
or fundraising exemption would incur the additional costs of
documenting their satisfaction of these other conditions. In addition,
even though it could be relatively less costly for some issuers to
document their satisfaction of this alternative as compared to the
proposed investment contract safe harbor, it could also be relatively
more costly for others without a corresponding increase in relative
benefits to issuers or investors. For example, it could be difficult
for issuers to determine when a subject crypto asset has sufficient
utility or control of the associated blockchain network or when the
application is sufficiently dispersed such that it no longer falls
within the purview of the Federal securities laws. Issuers may have to
incur costs to achieve certainty that they meet the requirements of the
safe harbor--for example, they may need to retain the services of legal
and technical professionals to verify that they meet the conditions of
the safe harbor.
5. Preemption of State Registration
The proposed rules would preempt State securities laws registration
and qualification requirements applicable to the initial sales and
resales of covered investment contracts under Regulation Crypto Assets,
and certain other resales of covered investment contracts. Instead, we
could have proposed that the initial sales and resales of covered
investment contracts not be exempt from State securities laws
registration and qualification requirements. State registration and
qualification requirements may offer an additional layer of investor
protection provided by the State review process. In addition, merit-
based reviews of offerings undertaken by some States may, in some
cases, limit participation by investors in certain offerings. Investors
in States with merit review may have access to fewer opportunities than
their counterparts in other States. This disparity would be evident in
offerings of covered investment contracts which generally are not
localized offerings. If investors are willing to accept lower returns
because of a perceived decrease in investment risk resulting from state
review, covered investment contract issuers may face a lower cost of
capital. Such an alternative, however, may introduce significant costs
for issuers. For example, it could increase the burden of responding to
multiple
[[Page 54591]]
reviews for the same offering, thus leading to a more complicated and
costly offering process. This would likely increase covered investment
contract issuers' time and compliance costs, thus making it more costly
to raise capital via the proposed exemptions. Absence of State
preemption would also limit the liquidity of covered investment
contracts in the secondary market, making it more difficult for issuers
to widely distribute the covered investment contract to investors and
users, thus limiting potential valuable network effects. Also, another
cost of this alternative would be the limited ability of covered
investment contract issuers to broaden their search for investors
across a larger number of States and thus have access to a larger pool
of investors, compared to a situation without preemption.
As another alternative, we could have proposed preemption of State
securities laws registration and qualification requirements only for
the initial sales or only the resales of covered investment contracts
under Regulation Crypto Assets. This alternative could enhance investor
protection because, as mentioned above, State registration and
qualification requirements, as well as merit-based reviews of offerings
undertaken by some States, may offer an additional layer of investor
protection provided by their review process. That layer of protection
comes with costs in the form of reduced opportunities for investors in
States with merit review. It also could have lowered costs for issuers
and investors compared to a scenario in which both the initial sales
and resales of covered investment contracts are not exempt from State
securities laws registration and qualification requirements. Such an
alternative, however, would generate costs for issuers and investors
compared to a scenario without preemption. As mentioned above, absence
of State preemption for initial sales would likely increase covered
investment contract issuers' time and compliance costs, thus making it
more costly to raise capital via the proposed exemptions. Absence of
State preemption for resales could also limit the liquidity of covered
investment contracts in the secondary market, making it more difficult
for issuers to widely distribute the covered investment contract to
investors and users, thus limiting potential valuable network effects.
E. Request for Comment
145. What types of companies (e.g., in terms of size, industry,
age, etc.) would most likely rely on Regulation Crypto Assets? Would
they use it for capital raising, or would they rely mainly on the
investment contract safe harbor?
146. How likely are the startup exemption or the fundraising
exemption to attract companies that are considering offerings relying
on Regulation D, Regulation A, Regulation Crowdfunding, or other
offering exemptions? What would be the costs and benefits from relying
on the startup exemption or the fundraising exemption versus existing
exemptions? Please provide estimates where possible.
147. What would be the costs and benefits for an issuer of using
the startup exemption? Please provide estimates where possible.
148. What would be the costs and benefits for an issuer of using
the fundraising exemption? Please provide estimates where possible.
149. What would be the costs and benefits for an issuer of using
the investment contract safe harbor? Please provide estimates where
possible.
150. Would the proposed disclosure requirements help ensure that
investors have a reasonable understanding of the risks and costs of
investing in covered investment contracts? If not, what additional
requirements would further mitigate the associated risks? How would the
costs and benefits compare to other exempt offering methods? Please
provide estimates where possible.
151. How would the proposed preemption of State registration and
qualification requirements affect the costs and benefits of offerings
done under the startup exemption and the fundraising exemption? Please
provide estimates where possible, including any information of costs
associated with complying with State Blue Sky laws that would be
preempted under the proposed rules. Would the proposed preemption
affect investor protection and capital formation in the market for
covered investment contracts?
152. What is the economic effect of the proposed investment
limitations? What types of issuers and investors are most likely to be
affected by this restriction? Would this restriction enhance investor
protection or undermine it by limiting investor choice?
153. How would investors who purchase covered investment contracts
under the proposed rules exit their investment? What is the likelihood
that there would be a ready market for covered investment contracts
issued in reliance on the proposed rules? What entities or investors
are likely to supply the liquidity, and what discounts, if any, are
investors likely to face when exiting their investments?
154. The Commission is interested in receiving comments, views,
estimates and data concerning the following:
a. Expected size of the market for covered investment contracts
(e.g., number of offerings, number of issuers, size of offerings,
number of investors, etc., as well as information comparing these
estimates to the current baseline);
b. Overall economic impact of the proposed rules; and
c. Any other aspect of the economic analysis.
d. What would be the economic impact of the policy alternatives
discussed in the proposed rules?
V. Paperwork Reduction Act
A. Background
Certain provisions of the proposed rules contain ``collection of
information'' requirements within the meaning of the PRA.\540\ We are
submitting the proposal to OMB for review in accordance with the
PRA.\541\ The hours and costs associated with preparing and filing
these collections constitute reporting and cost burdens imposed by each
collection of information. The titles for the collections of
information are:
---------------------------------------------------------------------------
\540\ See supra note 471.
\541\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------
``Rule 200 of Regulation Crypto Assets (Form NOR)'' (a
proposed new collection of information);
``Form 1-CRYPTO'' (a proposed new collection of
information);
``Form 1-KC'' (a proposed new collection of information);
``Form 1-SC'' (a proposed new collection of information);
``Form 1-UC'' (a proposed new collection of information);
``Form TR'' (a proposed new collection of information);
and
``Form ID'' (OMB Control Number 3235-0328).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid OMB control number. We are applying for OMB control
numbers for the proposed new collections of information in accordance
with 44 U.S.C. 3507(j) and 5 CFR 1320.13, and OMB has not yet assigned
a control number to each new collection. Responses to these collections
of information would be mandatory.
B. Estimate of Issuers
The number, type, and size of the issuers that would conduct
offerings of covered investment contracts under Regulation Crypto
Assets is uncertain, but data regarding current market
[[Page 54592]]
practices may help identify the number and characteristics of those
potential issuers.\542\ While it is not possible to precisely predict
the number of future offerings made in reliance on Regulation Crypto
Assets, for purposes of this analysis, we estimate that there would be
130 offerings per year.\543\ Notwithstanding the fact that each of the
proposed exemptions in Regulation Crypto Assets would be non-
exclusive,\544\ for purposes of this PRA analysis, we assume that each
of those 130 offerings would be conducted pursuant to either the
startup exemption or the fundraising exemption as discussed in more
detail in sections V.B.1 and V.B.2 below. We also discuss in section
V.B.3 below the estimated number of issuers that would rely on the
investment contract safe harbor annually.
---------------------------------------------------------------------------
\542\ See section IV above for a discussion of the data
regarding current market practices.
\543\ We base this estimate on the sum of the 99 offerings
involving crypto assets in the Regulation D and Regulation
Crowdfunding markets that raised $5 million or less in 2024 and the
31 offerings involving crypto assets in the Regulation D, Regulation
A, and Regulation Crowdfunding markets that raised more than $5
million but no more than $75 million in 2024.
\544\ See proposed 17 CFR 228.101(a).
---------------------------------------------------------------------------
1. Startup Exemption
We estimate that 99 of the total 130 offerings estimated to be
conducted annually under Regulation Crypto Assets would be conducted
under the startup exemption (by 99 different issuers). We base this
estimate on the 99 offerings involving crypto assets in the Regulation
D and Regulation Crowdfunding markets that raised $5 million or less in
2024. We assume that each issuer would conduct one offering per year
under the startup exemption. The burdens associated with the startup
exemption would be reflected in the ``Rule 200 of Regulation Crypto
Assets (Form NOR)'' information collection. Burdens associated with the
startup exemption also would be reflected in the ``Form TR''
information collection.
2. Fundraising Exemption
We estimate that 31 of the total 130 offerings estimated to be
conducted annually under Regulation Crypto Assets would be conducted
under the fundraising exemption (by 31 different issuers). We base this
estimate on the 31 offerings involving crypto assets in the Regulation
D, Regulation A, and Regulation Crowdfunding markets that raised more
than $5 million but no more than $75 million in 2024. We assume that
each issuer would conduct one offering per year under the fundraising
exemption.
The burdens associated with the fundraising exemption would be
reflected in the ``Form 1-CRYPTO,'' ``Form 1-KC,'' ``Form 1-SC,'' and
``Form 1-UC,'' information collections. Burdens associated with the
fundraising exemption also would be reflected in the ``Form TR''
information collection.
3. Investment Contract Safe Harbor
We also estimate that 475 issuers would rely on the investment
contract safe harbor annually.\545\ We assume that each issuer would
rely on the investment contract safe harbor once per year. For purposes
of this PRA analysis, we estimate the number of issuers that would rely
on the investment contract safe harbor annually by assuming that 15
percent of the estimated 3,165 crypto projects that were launched in
2024 would seek to rely on the investment contract safe harbor, once
adopted. The burdens associated with the investment contract safe
harbor would be reflected in the ``Form TR'' information collection.
---------------------------------------------------------------------------
\545\ This reflects our estimate of those issuers that would
rely on the investment contract safe harbor without also offering
covered investment contracts under the startup exemption or the
fundraising exemption.
---------------------------------------------------------------------------
C. Estimate of Issuer Burdens
Below we estimate the incremental and aggregate increase in
paperwork burden as a result of the proposed rules. These estimates
represent the average burden for all respondents, both large and small.
In deriving our estimates, we recognize that the burdens will likely
vary among individual respondents and from year to year based on a
number of factors, including the nature of their business.
1. Startup Exemption
As noted in section V.B.1 above, issuers' burdens associated with
the startup exemption would be reflected in two different information
collections: ``Rule 200 of Regulation Crypto Assets (Form NOR)'' and
``Form TR.'' This section discusses the burden estimates for the ``Rule
200 of Regulation Crypto Assets (Form NOR)'' information collection.
The burden estimates for the ``Form TR'' information collection are
discussed in section V.C.3 below.
The ``Rule 200 of Regulation Crypto Assets (Form NOR)'' information
collection would reflect burdens associated with proposed Rules 104(b),
200(c), and 200(d). We discuss our burden estimates for each of those
rules below. Based on the sum of the burden estimates for each of those
rules as well as the 99 estimated number of annual responses, we
estimate a total annual burden of 3,960 hours and $1,005,840 for the
``Rule 200 of Regulation Crypto Assets (Form NOR)'' information
collection.
a. Rule 104(b)
Rule 104(b) would require an issuer to include in an offering
circular or otherwise furnish to each purchaser, a reasonable time
prior to sale, a description in writing of any matters that would have
triggered disqualification under Rule 104 but occurred before the date
on which Rule 104 becomes effective.\546\ Issuers relying on the
startup exemption would be required to comply with this
requirement.\547\ This requirement is substantially similar to the
requirement in Rule 506(e) of Regulation D.\548\ In the adopting
release for Rule 506(e), the Commission estimated that all issuers
relying on an exemption in Rule 506 would expend one internal burden
hour to comply with the rule and that approximately one percent those
issuers would expend another 10 internal burden hours and require three
hours of outside professional services in order to comply with the rule
(i.e., because those issuers would, under Rule 506(e), be required to
prepare a disclosure statement describing matters that would have
triggered disqualification under Rule 506(d)(1) of Regulation D had
they occurred on or after the effective date of the rule).\549\
---------------------------------------------------------------------------
\546\ See proposed 17 CFR 228.104(b).
\547\ See proposed 17 CFR 228.200(b)(6).
\548\ See 17 CFR 230.506(e).
\549\ Disqualification of Felons and Other ``Bad Actors'' from
Rule 506 Offerings, Release No. 33-9414 (July 10, 2013) [78 FR
44729, 44751 (July 24, 2013)].
---------------------------------------------------------------------------
For purposes of this PRA analysis, we assume that Rule 104(b) would
require each issuer relying on the startup exemption to expend 1.5
internal burden hours and require 0.5 hours of outside professional
services (at a rate of $635 per hour \550\) in order to comply
[[Page 54593]]
with the rule. This estimate is intended to incorporate the one
internal burden hour that the Commission assumed every issuer relying
on an exemption in Rule 506 to expend in connection with Rule 506(e),
as well as another 0.5 internal burden hours and 0.5 hours of outside
professional services to account for any issuers that would have to
provide disclosures under Rule 104(b). Although this effectively
assumes that a larger percentage of issuers relying on the startup
exemption would have to provide such disclosure (as compared to the
Commission's estimate with respect to Rule 506(e)), we believe it is
appropriate to take a more conservative approach that potentially
overestimates the burdens associated with Rule 104(b) than an
alternative approach that could underestimate such burdens, in part,
because we expect that many of the issuers complying with the rule may
be early-stage issuers that are less familiar with the Federal
securities laws.
---------------------------------------------------------------------------
\550\ The $635 per hour rate reflects our current estimate of
the blended hourly rate for lawyers ($744), accountants and auditors
($348), financial managers ($731), and information technology
managers ($608). We expect that the types of professionals, the
rates that those professionals would charge, and the proportion of
services provided to issuers by each type of professional (relative
to other types of professionals) would vary among issuers and would
differ depending on the Regulation Crypto Assets information
collection to which an issuer is responding. Nonetheless, for
purposes of this PRA analysis, we believe the $635 per hour rate is
a reasonable estimate of the hourly cost of professionals that would
provide services to an issuer responding to an information
collection under Regulation Crypto Assets. To calculate the
occupational hourly rates used in this release, the Commission uses
occupational mean hourly wage data from the Occupational Employment
and Wage Statistics (OEWS) program of the Bureau of Labor Statistics
(BLS) for ``Securities, Commodity Contracts, and Other Financial
Investments and Related Activities'' (NAICS 523). See Occupational
Employment and Wage Statistics, U.S. Bureau of Lab. Stats., https://bls.gov/oes/; see also Standard Occupational Classification, U.S.
Bureau of Lab. Stats., https://bls.gov/soc/ (describing occupational
classification system used by BLS); Exec. Off. of the President,
Off. of Mgmt. & Budget, North American Industry Classification
System (2022), available at https://census.gov/naics/reference_files_tools/2022_NAICS_Manual.pdf (describing the industry
classification system used by BLS and other agencies). The mean
hourly wage for each occupation is adjusted for changes in the
seasonally adjusted employment cost index for private wages and
salaries between the data reference period and when the data are
released by BLS. See Employment Cost Index, U.S. Bureau of Lab.
Stats., https://bls.gov/eci/. The adjusted mean hourly wage is then
multiplied by a factor that accounts for nonwage costs borne by
employers, such as bonuses, benefits, and overhead. This factor is
calculated as an average over the 10 most recently available years
of data of the ratio of the Bureau of Economic Analysis's annual
gross output data for NAICS 523 to total annual wages across all
occupations for NAICS 523 in the OEWS data. See Gross Output by
Industry, U.S. Bureau of Econ. Analysis, https://bea.gov/data/industries/gross-output-by-industry; Occupational Employment and
Wage Statistics, U.S. Bureau of Lab. Stats., https://bls.gov/oes/.
The final product is the occupational hourly rate. See generally
Updated Methodology for Calculating Occupational Hourly Rates (Dec.
19, 2025), available at https://sec.gov/files/method-occupational-hourly-rates.pdf.
---------------------------------------------------------------------------
Based on the 99 estimated number of annual responses to the ``Rule
200 of Regulation Crypto Assets (Form NOR)'' information collection, we
estimate a total annual burden of 148.5 hours (1.5 internal burden
hours per response x 99 responses annually) and $31,432.50 (0.5 hours
of outside professional services per response x $635 per hour x 99
responses annually) associated with Rule 104(b), which would be
attributed to the ``Rule 200 of Regulation Crypto Assets (Form NOR)''
information collection.
The below table summarizes the estimated paperwork burdens
associated with Rule 104(b) attributable to the ``Rule 200 of
Regulation Crypto Assets (Form NOR)'' collection of information.
[GRAPHIC] [TIFF OMITTED] TP21AU26.050
b. Rule 200(c)
Rule 200(c) would require the issuer to file (and, in certain
circumstances, amend a previously filed) Form NOR with the Commission
in order to rely on the startup exemption.\551\ Form NOR, in turn,
would require the issuer to provide certain information regarding the
issuer and the subject crypto asset, where to locate disclosures
required to be made under Rule 200(d) (as discussed in section V.C.1.c
below), and certain certifications regarding the information provided
in the Form NOR as well as the issuer's intentions regarding the
offering.\552\
---------------------------------------------------------------------------
\551\ See proposed 17 CFR 200.200(c).
\552\ See proposed 17 CFR 239.605.
---------------------------------------------------------------------------
The information that would be required to be included in a Form NOR
is relatively limited, with even fewer disclosure requirements than
Form D. Further, the circumstances under which an issuer would be
required to amend a Form NOR generally are consistent with the
amendment obligations with respect to a Form D. We believe it is
appropriate, therefore, to assume that the burden associated with Rule
200(c) will be the same as the burden associated with Form D, which we
estimate to be a total of four hours per response annually.\553\
Consistent with our estimates for Form D, we further estimate that 25
percent of those four hours (one hour) will be performed internally by
the issuer and that 75 percent of those four hours (three hours) will
be performed externally be outside professionals (at a rate of $635 per
hour).
---------------------------------------------------------------------------
\553\ These four hours reflect both the initial burdens
associated with filing a Form NOR as well as the subsequent burdens
associated with any amendments the issuer would be required to make
to such Form NOR.
---------------------------------------------------------------------------
Based on the 99 estimated number of annual responses to the ``Rule
200 of Regulation Crypto Assets (Form NOR)'' information collection, we
estimate a total annual burden of 99 hours (one internal burden hour
per response x 99 responses annually) and $188,595 (three hours of
outside professional services per response x $635 per hour x 99
responses annually) associated with Rule 200(c), which would be
attributed to the ``Rule 200 of Regulation Crypto Assets (Form NOR)''
information collection.
The below table summarizes the estimated paperwork burdens
associated with Rule 200(c) attributable to the ``Rule 200 of
Regulation Crypto Assets (Form NOR)'' collection of information.
[[Page 54594]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.051
c. Rule 200(d)
Rule 200(d) would require an issuer relying on the startup
exemption to make the information described in Rule 103 publicly
accessible, free of charge, at the website address specified in the
notice of reliance at or prior to the time that the notice of reliance
is filed with the Commission in accordance with Rule 200(c)(1).\554\
Rule 200(d) also would require an issuer to keep that information
publicly accessible and free of charge at the website address specified
in the notice of reliance and periodically amend that information to
reflect material changes.\555\
---------------------------------------------------------------------------
\554\ See proposed 17 CFR 228.200(d).
\555\ Id.
---------------------------------------------------------------------------
Because of the principles-based nature of the disclosure
requirements set forth in proposed Rule 103, the burdens associated
with Rule 200(d) may differ significantly from one issuer to another.
Depending on their particular facts and circumstances, some issuers may
be required to make extensive disclosures, while other issuers may be
required to make relatively limited disclosures.
In order to derive the estimate for Rule 200(d), we note that, in
adopting Regulation Crowdfunding, the Commission ``estimate[d] that the
average total burden to prepare and file the Form C, including any
amendment to disclose any material change, will be approximately 100
hours.'' \556\ The Commission further noted that, at that time, ``the
average burden per response for preparing and filing a Form 1-A [was
estimated] to be approximately 750 hours.'' \557\
---------------------------------------------------------------------------
\556\ Crowdfunding Adopting Release at 71524.
\557\ Id. at 71523, n.1633. Our current total annual burden
estimates for Form C and Form 1-A are 101 hours and 717.372 hours,
respectively.
---------------------------------------------------------------------------
We recognize that there are several differences between the
proposed disclosure requirements under Rule 200(d) (the substance of
which would be set forth in Rule 103) and the information required to
be provided by Form C and Form 1-A. Among other things, the proposed
disclosure requirements are intended to elicit information that is
unique to covered investment contracts and crypto assets. The proposed
disclosure requirements also do not require a discussion of an issuer's
financial condition or any financial statements or information, which
could comprise a significant portion of the burden estimates for Form C
and Form 1-A. Further, Rule 200(d) requires that the information be
made publicly accessible and free of charge on a website of the
issuer's choosing rather than filed on EDGAR. These differences suggest
that an issuer may incur relatively lower burdens under Rule 200(d)
than it would in connection with filing a Form C or Form 1-A.
In light of these differences between the requirements of Rule
200(d) and Forms C and 1-A, we estimate that Rule 200(d) would require
each issuer relying on the startup exemption to expend 50 total burden
hours in order to comply with the rule (i.e., half of the Commission's
initial burden estimate for Form C).\558\ That estimate reflects both
the burdens associated with providing the initial disclosures under
Rule 200(d), as well as the burdens associated with keeping that
information publicly accessible and periodically amending that
information to reflect material changes. In addition, we assume that 75
percent of those 50 total burden hours (37.5 hours) will be performed
internally by the issuer and 25 percent of those 50 total burden hours
(12.5 hours) will be performed externally by outside professionals (at
a rate of $635 per hour).
---------------------------------------------------------------------------
\558\ We base our estimated burden for Rule 200(d) on Form C
rather than Form 1-A in part because the offering limit under the
startup exemption ($5 million) corresponds to the offering limit
under Regulation Crowdfunding ($5 million) than Regulation A ($75
million).
---------------------------------------------------------------------------
Based on the 99 estimated number of annual responses to the ``Rule
200 of Regulation Crypto Assets (Form NOR)'' information collection, we
estimate a total annual burden of 3,712.5 hours (37.5 internal burden
hours per response x 99 responses annually) and $785,812.50 (12.5 hours
of outside professional services per response x $635 per hour x 99
responses annually) associated with Rule 200(d), which would be
attributed to the ``Rule 200 of Regulation Crypto Assets (Form NOR)''
information collection. The below table summarizes the paperwork
burdens associated with Rule 200(d) attributed to the ``Rule 200 of
Regulation Crypto Assets (Form NOR)'' collection of information.
[[Page 54595]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.052
d. Total ``Rule 200 of Regulation Crypto Assets (Form NOR)''
Information Collection
The below table summarizes the total estimated paperwork burdens of
the ``Rule 200 of Regulation Crypto Assets (Form NOR)'' information
collection attributed to Rules 104(b), 200(c), and 200(d).
[GRAPHIC] [TIFF OMITTED] TP21AU26.053
2. Fundraising Exemption
As noted in section V.B.2 above, issuers' burdens associated with
the fundraising exemption would be reflected in five different
information collections: ``Form 1-CRYPTO,'' ``Form 1-KC,'' ``Form 1-
SC,'' ``Form 1-UC,'' and ``Form TR.'' This section discusses the burden
estimates for all those information collections except for Form TR,
which is discussed in section V.C.3 below.
As discussed in section II.C.2.a.i above, the fundraising exemption
is modeled on Regulation A. Similarly, each of the forms that an issuer
is required to file under the fundraising exemption is modeled on the
corresponding form that is required to be filed under Regulation A.
Nonetheless, there are several differences between the fundraising
exemption, Regulation A, and the two sets of forms. For example, as
with the startup exemption, the vast majority of the non-financial
information requirements under the fundraising exemption (i.e., the
disclosure requirements set forth in Rule 103) are intended to elicit
information that is unique to covered investment contracts and crypto
assets.
In addition, the Part I information requirements under Form 1-
CRYPTO and Form 1-KC are more streamlined and simplified than the Part
I information requirements under Form 1-A and Form 1-K. Further,
although the proposed financial statements requirements are
substantially similar to the corresponding requirements under Form 1-A,
the discussion of financial condition required under Forms 1-CRYPTO, 1-
KC, and 1-SC is based on the corresponding requirement in Regulation
Crowdfunding rather than the discussion of financial condition required
under Regulation A. These differences may suggest that an issuer may
incur relatively lower burdens
[[Page 54596]]
under the fundraising exemption than it would under Regulation A.
Notwithstanding these differences, it is difficult to determine
with certainty whether an issuer's burdens would be significantly lower
under the fundraising exemption than under Regulation A. We do not
expect the burdens would be higher than under Regulation A.
Accordingly, we estimate that the fundraising exemption would require
the same burdens as Regulation A. Thus, for each of the proposed forms
that an issuer would be required to file under the proposed fundraising
exemption, our burden estimate is the same as our current burden
estimate for the corresponding form required to be filed under
Regulation A. We discuss each form in turn below.
a. Form 1-CRYPTO
Offering statements filed under Regulation Crypto Assets would use
new Form 1-CRYPTO. Consistent with the current burden estimate for Form
1-A, we estimate that Form 1-CRYPTO would require approximately 717.372
annual burden hours per filing.\559\ We further estimate that 75
percent of those 717.372 total burden hours (538.029 hours) will be
performed internally by the issuer and 25 percent of those 717.372
total burden hours (179.343 hours) will be performed externally by
outside professionals (at a rate of $635 per hour).
---------------------------------------------------------------------------
\559\ For accuracy of the calculations in this section, we did
not round the preliminary figures to the nearest whole number.
However, we did round the final calculations of the change in burden
estimates of new responses resulting from the proposed rules. See
supra note 568.
---------------------------------------------------------------------------
Based on the 31 estimated number of offerings annually under the
fundraising exemption, we estimate a total annual burden of 16,678.899
hours (538.029 internal burden hours per response x 31 responses
annually) and $3,530,366.955 (179.343 hours of outside professional
services per response x $635 per hour x 31 responses annually)
associated with the ``Form 1-CRYPTO'' information collection.
The below table summarizes the estimated paperwork burdens
attributable to the ``Form 1-CRYPTO'' information collection.
[GRAPHIC] [TIFF OMITTED] TP21AU26.054
b. Form 1-KC
Form 1-KC would be used for annual reports under Rule 305(a)(1) of
Regulation Crypto Assets. Consistent with the current burden estimate
for Form 1-K, we estimate that Form 1-KC would require approximately
600 annual burden hours per filing. We further estimate that 75 percent
of those 600 total burden hours (450 hours) will be performed
internally by the issuer and 25 percent of those 600 total burden hours
(150 hours) will be performed externally by outside professionals (at a
rate of $635 per hour).
Based on the 31 estimated number of offerings annually under the
fundraising exemption,\560\ we estimate a total annual burden of 13,950
hours (450 internal burden hours per response x 31 responses annually)
and $2,952,750 (150 hours of outside professional services per response
x $635 per hour x 31 responses annually) associated with the ``Form 1-
KC'' information collection.
---------------------------------------------------------------------------
\560\ Although Form 1-K is only required to be filed by issuers
conducting Tier 2 offerings under Regulation A, Form 1-KC would be
required to be filed by issuers conducting either Tier 1 or Tier 2
offerings under the fundraising exemption.
---------------------------------------------------------------------------
The below table summarizes paperwork burdens attributable to the
``Form 1-KC'' information collection.
[GRAPHIC] [TIFF OMITTED] TP21AU26.055
c. Form 1-SC
Form 1-SC would be used for semiannual reports under Rule 305(a)(3)
of Regulation Crypto Assets. Consistent with the current burden
estimate for Form 1-SA, we estimate that Form 1-SC would require
approximately 188.04 annual burden hours per filing. We further
estimate that 85 percent of those 188.04 total burden hours (159.834
hours) will be performed internally by the issuer and 15 percent of
those 188.04 total burden hours (28.206 hours) will be performed
externally by
[[Page 54597]]
outside professionals (at a rate of $635 per hour).
Based on the 31 estimated number of offerings annually under the
fundraising exemption,\561\ we estimate a total annual burden of
4,954.854 hours (159.834 internal burden hours per response x 31
responses annually) and $555,235.11 (28.206 hours of outside
professional services per response x $635 per hour x 31 responses
annually) associated with the ``Form 1-SC'' information collection.
---------------------------------------------------------------------------
\561\ Although Form 1-SA is only required to be filed by issuers
conducting Tier 2 offerings under Regulation A, Form 1-SC would be
required to be filed by issuers conducting either Tier 1 or Tier 2
offerings under the fundraising exemption.
---------------------------------------------------------------------------
The below table summarizes the paperwork burdens attributable to
the ``Form 1-SC'' information collection.
[GRAPHIC] [TIFF OMITTED] TP21AU26.056
d. Form 1-UC
Form 1-UC would be used for current reports under Rule 305(a)(4) of
Regulation Crypto Assets. Consistent with the current burden estimate
for Form 1-U, we estimate that Form 1-UC would require approximately
five annual burden hours per filing. We further estimate that 85
percent of those five total burden hours (4.25 hours) will be performed
internally by the issuer and 15 percent of those five total burden
hours (0.75 hours) will be performed externally by outside
professionals (at a rate of $635 per hour).
Based on the estimated 31 offerings annually under the fundraising
exemption,\562\ we estimate a total annual burden of 131.75 hours (4.25
internal burden hours per response x 31 responses annually) and
$14,763.75 (0.75 hours of outside professional services per response x
$635 per hour x 31 responses annually) associated with the ``Form 1-
UC'' information collection.
---------------------------------------------------------------------------
\562\ Although Form 1-U is only required to be filed by issuers
conducting Tier 2 offerings under Regulation A, Form 1-UC would be
required to be filed by issuers conducting either Tier 1 or Tier 2
offerings under the fundraising exemption.
---------------------------------------------------------------------------
The below table summarizes the estimated paperwork burdens
attributable to the ``Form 1-UC'' information collection.
[GRAPHIC] [TIFF OMITTED] TP21AU26.057
3. Form TR
As noted in section V.B above, an issuer may file a transition
report on Form TR pursuant to the startup exemption (under proposed
Rule 200(e)), the fundraising exemption (under proposed Rule 305(c) and
(d)), or the investment contract safe harbor (under Rule 400(b)).
The ``Form TR'' information collection would reflect burdens
associated with proposed Rules 200(e), 305(c) and (d), and 400(b). We
discuss our burden estimates for each of those rules below. Based on
the sum of the burden estimates for each of those rules as well as the
estimated number of annual responses, we estimate a total annual burden
of 11,179.65 hours and $2,365,375 for the ``Form TR'' information
collection.
a. Rule 200(e)
Rule 200(e) would require an issuer relying on the startup
exemption to file a transition report containing the information
required by Form TR no later than four years after the date on which
the issuer filed a notice of reliance in accordance with Rule
200(c)(1).\563\ Form TR, in turn, would require an issuer making a
filing pursuant to Rule 200(e) to disclose certain fundamental
information (e.g., its name, jurisdiction of incorporation or
formation, and contact information) as well certain other information
that would depend on whether the issuer
---------------------------------------------------------------------------
\563\ See proposed 17 CFR 228.200(e).
---------------------------------------------------------------------------
[[Page 54598]]
had, as of the time of the filing, satisfied the condition in Rule
400(a).\564\
---------------------------------------------------------------------------
\564\ See proposed 17 CFR 239.604. If the issuer had satisfied
the condition in Rule 400(a), then Form TR would require the issuer
to provide the following: (1) a brief description of the crypto
asset and associated crypto network or associated crypto application
sufficient for a reasonable investor to identify the crypto asset
and associated crypto network or associated crypto application to
which the Form TR relates; (2) a certification that the issuer is
not engaging in, and is not planning to and has not promised or
represented that it will engage in, essential managerial efforts
that primarily determine the value of the crypto asset; and (3) an
analysis supporting that certification. If the issuer had not
satisfied the condition in Rule 400(a), then Form TR would require
the issuer to provide the following: (1) a brief description of the
covered investment contract sufficient for a reasonable investor to
identify the covered investment contract to which this Form TR
relates; (2) a description of the current status of the covered
investment contract, the subject crypto asset, and the associated
crypto network or associated crypto application and the issuer's
plans with respect to such covered investment contract, subject
crypto asset, and associated crypto network or associated crypto
application; and (3) if the issuer indicated that the crypto asset
had separated from the issuer's representations or promises subject
crypto asset and ceased to exist, an analysis supporting that
determination.
---------------------------------------------------------------------------
Because the Form TR disclosure requirements would differ depending
on whether an issuer has satisfied the condition in Rule 400(a), the
burdens associated with Rule 200(e) also would differ from one issuer
to another. Depending on their particular facts and circumstances, some
issuers may be required to make extensive disclosures, while other
issuers may be required to make relatively limited disclosures (e.g.,
if they had not satisfied the condition in Rule 400(a) and the crypto
asset had not separated from the issuer's representations or promises).
For purposes of this PRA analysis, we assume that each issuer filing a
Form TR pursuant to Rule 200(e) would incur 20 total burden hours, with
75 percent of those 20 total burden hours (15 hours) being performed
internally by the issuer and 25 percent of those 20 total burden hours
(5 hours) being performed externally by outside professionals (at a
rate of $635 per hour).
We assume that 25 percent of the issuers relying on the startup
exemption would make a Form TR filing pursuant to Rule 200(e) each
year. As such, based on the estimated 99 annual responses to the ``Rule
200 of Regulation Crypto Assets (Form NOR)'' information collection, we
assume there would be 24.75 Form TR filings pursuant to Rule 200(e).
Further, we estimate a total annual burden of 371.25 hours (15 internal
burden hours per response x 24.75 responses annually) and $78,581.25
(five hours of outside professional services per response x $635 per
hour x 24.75 responses annually) associated with Rule 200(e), which
would be attributed to the ``Form TR'' information collection.
The below table summarizes the estimated paperwork burdens
associated with Rule 200(e) for issuers relying on the startup
exemption.
[GRAPHIC] [TIFF OMITTED] TP21AU26.058
b. Rules 305(c) and (d)
Rule 305(c) and (d) would set forth transition reporting provisions
that would apply equally to issuers in Tier 1 and Tier 2 offerings and
set forth pathways to suspend or terminate ongoing reporting
obligations under the fundraising exemption.\565\
---------------------------------------------------------------------------
\565\ See proposed 17 CFR 228.305(c) and (d).
---------------------------------------------------------------------------
Under Rule 305(c)(1), the duty to file reports under Rule 305(a)
with respect to a class of securities held of record (as defined in 17
CFR 240.12g5-1) by less than 300 persons would be suspended for such
class of securities immediately upon filing with the Commission a
transition report on Form TR if the issuer of such class has filed all
reports required to be filed under Rule 305 before the date of such
Form TR filing for the shorter of: (i) the period since the issuer
became subject to such reporting obligation; or (ii) its most recent
three fiscal years and the portion of the current year preceding the
date of filing Form TR. This proposed rule substantially mirrors Rule
257(d) of Regulation A.
The information that an issuer seeking to suspend its duty to
report under Rule 305(c) would be required to provide under Form TR is
substantially identical to the information required by Form 1-Z for an
issuer seeking to suspend its duty to report under Rule 257(d). Thus,
consistent with the current burden estimate for Form 1-Z, we estimate
that a Form TR filed pursuant to Rule 305(c) would require
approximately 1.5 annual burden hours per filing. We further estimate
that 100 percent of those 1.5 total burden hours will be performed
internally by the issuer. We assume that ten percent of the issuers
relying on the fundraising exemption would make a Form TR filing
pursuant to Rule 305(c) each year. As such, based on the estimated 31
issuers relying on the fundraising exemption annually, we assume there
would be 3.1 Form TR filings pursuant to Rule 305(c) and a total annual
burden of 4.65 hours (1.5 burden hours per response x 3.1 responses
annually) associated with Rule 305(c), which would be attributed to the
``Form TR'' information collection.
The below table summarizes the estimated paperwork burdens
attributable to Rule 305(c) for issuers relying on the fundraising
exemption.
[[Page 54599]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.059
Under Rule 305(d)(2), if an issuer satisfies the condition in Rule
400(a) (i.e., the investment contract safe harbor) or the covered
investment contract otherwise separates from the subject crypto asset
and ceases to exist during the period in which the issuer is required
to file reports under Rule 305(a), the issuer's obligation to file
reports under Rule 305(a) will terminate immediately upon filing with
the Commission a transition report on Form TR.
Form TR's information requirements for an issuer filing under Rule
305(d) are the same as those for an issuer filing under Rule 200(e).
Thus, consistent with the burden estimates for Rule 200(e), we assume
that each issuer filing a Form TR pursuant to Rule 305(d) would incur
20 total burden hours, with 75 percent of those 20 total burden hours
(15 hours) being performed internally by the issuer and 25 percent of
those 20 total burden hours (5 hours) being performed externally by
outside professionals (at a rate of $635 per hour).
As noted in section V.B.2 above, we estimate that issuers would
conduct 31 offerings annually under the fundraising exemption. For
purposes of this PRA analysis, we assume that 25 percent of those
issuers would terminate their duty to report under Rule 305(d)
annually. Thus, we estimate a total of 7.75 Form TR filings pursuant to
Rule 305(d) annually, with an annual burden of 116.25 hours (15
internal burden hours per response x 7.75 responses annually) and an
annual cost burden of $24,606.25 (five hours of outside professional
services per response x $635 per hour x 7.75 responses annually), each
of which would be attributed to the ``Form TR'' information collection.
The below table summarizes the estimated paperwork burdens
attributable to Rule 305(d) for issuers relying on the fundraising
exemption.
[GRAPHIC] [TIFF OMITTED] TP21AU26.060
c. Rule 400(b)
Rule 400 would provide that a covered investment contract will be
deemed to have ceased to exist, and the crypto asset that was subject
to the covered investment contract will be deemed not to constitute or
represent or to be subject to that investment contract for purposes of
section 2(a)(1) of the Securities Act and section 3(a)(10) of the
Exchange Act, if the conditions set forth in Rule 400(a) and (b) are
satisfied. Rule 400(a) would require that the issuer of the covered
investment contract has completed or otherwise permanently ceased all
essential managerial efforts that it represented or promised it would
engage in under the covered investment contract and is not making and
does not intend to make any new representations or promises to engage
in essential managerial efforts with respect to the crypto asset. Rule
400(b) would require the issuer of the covered investment contract to
file a transition report on Form TR. Form TR, in turn, would require
the issuer to disclose certain fundamental information (e.g., its name,
jurisdiction of incorporation or formation, and contact information) as
well as the same information that an issuer would be required to
disclose if it were filing a Form TR under Rule 200(e) or 305(d) and it
had satisfied the condition in Rule 400(a).
As noted in sections V.C.3.a and b above, we estimate that issuers
filing a Form TR pursuant to Rule 200(e) or Rule 305(d) would incur 20
total burden hours per filing. The burden hours for those filings,
however, may be more variable than the burden hours for an issuer
filing a Form TR pursuant to Rule 400(b) because the Form TR disclosure
requirements for an issuer filing pursuant to Rule 200(e) or 305(d)
would differ depending on whether the issuer has satisfied the
condition in Rule 400(a). By contrast, because all issuers filing a
Form TR pursuant to Rule 400(b) must have satisfied the condition in
Rule 400(a) in order to fit within the investment contract safe harbor,
we
[[Page 54600]]
assume that issuers filing a Form TR pursuant to Rule 400(b) will, on
average, incur more burden hours than an issuer filing a Form TR
pursuant to Rule 200(e) or 305(d). Thus, for purposes of this PRA
analysis, we assume that each issuer filing a Form TR pursuant to Rule
400(b) would incur 30 total burden hours, with 75 percent of those 30
total burden hours (22.5 hours) being performed internally by the
issuer and 25 percent of those 30 total burden hours (7.5 hours) being
performed externally by outside professionals (at a rate of $635 per
hour).
We assume that each of the 475 issuers that we estimate would rely
on the investment contract safe harbor annually would file a Form TR
pursuant to Rule 400(b). Thus, we estimate a total of 475 Form TR
filings pursuant to Rule 400(b) annually, with an annual burden of
10,687.5 hours (22.5 internal burden hours per response x 475 responses
annually) and an annual cost burden of $2,262,187.50 (7.5 hours of
outside professional services per response x $635 per hour x 475
responses annually), each of which would be attributed to the ``Form
TR'' information collection.
The below table summarizes the estimated paperwork burdens
associated with Rule 400(b).
[GRAPHIC] [TIFF OMITTED] TP21AU26.061
The below table summarizes the total estimated paperwork burdens of
the ``Form TR'' information collection attributable to Rules 200(e),
305(c), 305(d), and 400(b).
[GRAPHIC] [TIFF OMITTED] TP21AU26.062
4. Form ID
Under the proposed rules, an issuer would be required to file
specified disclosures with us on EDGAR. We anticipate that many issuers
relying on Regulation Crypto Assets for the first time would not
previously have filed an electronic submission with us and, therefore,
would need to complete and submit Form ID, the application for access
to file on EDGAR. The proposed rules would not change the form itself,
but we anticipate that the number of Form ID filings would increase due
to new issuers seeking to rely on Regulation Crypto Assets.
For purposes of this PRA analysis, we assume that all the issuers
that would seek to offer and sell securities in reliance on the startup
exemption (99 issuers) and the fundraising exemption (31 issuers) would
not have filed an electronic submission with us previously and,
therefore, would be required to file a Form ID.\566\ In total,
[[Page 54601]]
this would correspond to 130 additional Form ID filings and a total
annual burden of 78 hours for the ``Form ID'' information collection
(130 filings x 0.6 hours/filing).\567\
---------------------------------------------------------------------------
\566\ Conversely, we assume that all of the issuers that would
rely on the investment contract safe harbor would have filed an
electronic submission with us previously and, therefore, would not
be required to submit a Form ID. That is, we assume that such
issuers either would have relied on an existing exemption (if they
offered or sold covered investment contracts before the proposed
rules are adopted) or they would rely on either the startup
exemption or the fundraising exemption before satisfying the
investment contract safe harbor. See supra note 456 (noting that our
economic analysis assumes that market participants are compliant
with existing applicable Commission rules). For those issuers that
have relied on an existing exemption to offer and sell covered
investment contracts, we recognize that some existing exemptions on
which they may rely do not require an electronic submission and,
therefore, those issuers may not have been required to submit a Form
ID. See, e.g., 17 CFR 230.147. Therefore, to the extent those
issuers would rely on the investment contract safe harbor, they
would also be required to submit a Form ID. Because we cannot
estimate the number of such issuers with precision, however, we have
not accounted for them in the burden estimate for Form ID.
\567\ We do not estimate any cost burden associated with the
additional Form ID submissions because we assume that 100 percent of
the burden associated with a Form ID submission is performed
internally by the issuer.
---------------------------------------------------------------------------
Additionally, for purposes of this PRA analysis, we assume that
each issuer filing a Form ID would incur 0.6 total burden hours, with
100 percent of those hours being handled internally by the issuer. The
below table summarizes the estimated incremental paperwork burdens
associated with Form ID.
[GRAPHIC] [TIFF OMITTED] TP21AU26.063
The table below illustrates the estimated annual compliance burden
of new information collections as a result of the proposed rules'
estimated effect on the paperwork burden per response.
[GRAPHIC] [TIFF OMITTED] TP21AU26.064
The table below illustrates the estimated change in annual
compliance burdens of existing information collections as a result of
the proposed rules' estimated effect on the paperwork burden per
response.
---------------------------------------------------------------------------
\568\ For purposes of the PRA, each of the requested new annual
responses (comun A) and the requested new burden hours (column B)
are rounded to the nearest whole number and the requested new cost
burden (column C) is rounded to the nearest dollar.
---------------------------------------------------------------------------
[[Page 54602]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.065
D. Collections of Information are Mandatory
The collections of information required under Regulation Crypto
Assets would be mandatory for all issuers.
E. Confidentiality
The collections of information required under Regulation Crypto
Assets would not be confidential, although issuers may request
confidential treatment for certain information filed or materials
submitted in conjunction with the filings.\569\ A Form 1-CRYPTO that is
non-publicly submitted by an issuer and later abandoned before being
publicly filed with the Commission, however, remains non-public, absent
a request for such information under the Freedom of Information
Act.\570\
---------------------------------------------------------------------------
\569\ See 17 CFR 200.83; 17 CFR 230.406.
\570\ 5 U.S.C. 552. The Commission's regulations that implement
the Freedom of Information Act are at 17 CFR 200.80 et seq.
---------------------------------------------------------------------------
F. Retention Period of Recordkeeping Requirements
Issuers would not be subject to recordkeeping requirements under
Regulation Crypto Assets.
G. Request for Comment
We invite comment on all of the above estimates. In particular, we
request comment on the assumptions and estimates described above with
respect to how issuers would comply with the proposed information
collection requests. Pursuant to 44 U.S.C. 3506(c)(2)(B), we request
comment in order to: (1) evaluate whether the proposed collections of
information are necessary for the proper performance of the functions
of the agency, including whether the information would have practical
utility; (2) evaluate the accuracy of our estimate of the burden of the
proposed collections of information; (3) determine whether there are
ways to enhance the quality, utility, and clarity of the information to
be collected; (4) evaluate whether there are ways to minimize the
burden of the proposed collections of information on those who are to
respond, including through the use of automated collection techniques
or other forms of information technology; and (5) evaluate whether the
proposed rules would have any effects on any other collections of
information not previously identified in this section.
Any member of the public may direct to us any comments about the
accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons submitting comments on the collection of
information requirements should direct them to the OMB Desk Officer for
the Securities and Exchange Commission,
[email protected], and should send a copy to
Vanessa A. Countryman, Secretary, Securities and Exchange Commission,
using any of the methods in the ADDRESSES section, with reference to
File No. S7-2026-27. Requests for materials submitted to OMB by the
Commission with regard to these collections of information should be in
writing, refer to File No. S7-2026-27, and be submitted to the
Securities and Exchange Commission, Office of FOIA Services, 100 F
Street NE, Washington, DC 20549-2736. OMB is required to make a
decision concerning the collection of information between 30 and 60
days after publication of this release. Consequently, a comment to OMB
is best assured of having its full effect if OMB receives it within 30
days of publication.
VI. Present Values and Annualized Values of Monetized Benefits and
Costs
In addition to discussing the benefits, costs, and reasonable
alternatives in the economic analysis in section IV, consistent with
the requirements of Executive Order 12866, and estimating burdens under
the PRA in section V, the Commission reports estimated total monetized
benefits and costs for all affected entities in two ways specified in
OMB Circular A-4.\571\ These additional analyses include only benefits
and costs that are monetized in the economic analysis and thus do not
encompass all of the proposed rules' benefits and costs. The two
presentations are intended to address the fact that the various
benefits and costs of the proposed rules would not accrue at the same
point in time; rather, benefits and costs that accrue sooner are
generally more valuable than those that occur later in time.\572\
---------------------------------------------------------------------------
\571\ See Exec. Order No. 12866 (Sept. 30, 1993), 58 FR 51735,
51741 (Oct. 4, 1993) (requiring agencies to provide an analysis of
benefits, costs, and regulatory alternatives to OIRA for significant
regulatory actions); OMB, Circular A-4, at 31-34, 45 (Sept. 17,
2003) (providing guidance to agencies regarding compliance with
Executive Order 12866); see also Exec. Order No. 14215 (Feb. 18,
2025), 90 FR 10447, 10448 (Feb. 24, 2025) (requiring independent
agencies to comply with Exec. Order No. 12866). In addition,
Executive Order 14192 requires agencies to provide their best
approximation of the total costs or savings associated with each new
regulation or repealed regulation consistent with the analyses
required by Executive Order 12866. See Exec. Order No. 14192 (Jan.
31, 2025), 90 FR 9065, 9066 (Feb. 6, 2025).
\572\ See Circular A-4, at 32.
---------------------------------------------------------------------------
We report below (1) the present values of expected benefits and
costs that are monetized in our economic analysis over a 10-year time
horizon, starting in 2026, as well as (2) the annualized values over
the same time horizon that are derived from the present values. This
10-year time horizon represents the period over which the principal
benefits and costs that are monetized in the economic analysis are
expected to accrue.\573\ The
[[Page 54603]]
present values and annualized values account for the timing of benefits
and costs through discounting, which is a procedure that accounts for
the time value of money.\574\ The present values and annualized values
are computed for total monetized benefits and costs, combining one-time
and recurring monetized benefits and costs, across all affected
entities over the time horizon.
---------------------------------------------------------------------------
\573\ See Circular A-4, at 31 (stating that ``[t]he ending point
should be far enough in the future to encompass all the significant
benefits and costs likely to result from the rule''). For the
purposes of this analysis, we assume the effective date of the
proposed rule, as well as the start year for the analysis's 10-year
time horizon, is the present year. The analysis uses calendar years
and also accounts for the compliance periods included in the release
(see note b in Table 8).
\574\ See id. at 32 (``The Rationale for Discounting'') & 45
(``Treatment of Benefits and Costs over Time''); see also OIRA,
Regulatory Impact Analysis: A Primer, at 11 (Aug. 15, 2011),
available at https://reginfo.gov/public/jsp/Utilities/circular-a-4_regulatory-impact-analysis-a-primer.pdf (``To provide an accurate
assessment of benefits and costs that occur at different points in
time or over different time horizons, an agency should use
discounting. Agencies should provide benefit and cost estimates
using both 3 percent and 7 percent annual discount rates expressed
as a present value as well as annualized.''); Harvey S. Rosen & Ted
Gayer, Public Finance 151 (8th ed. 2008) (defining present value as
``the value today of a given amount of money to be paid or received
in the future'').
---------------------------------------------------------------------------
Table 8 reports the present values of monetized benefits and costs
using annual real discount rates of three percent and seven percent
over a 10-year time horizon, starting in 2026.\575\ It is important to
note that the compliance costs for each exemption of the proposed rules
are incurred only if issuers choose to avail themselves of the
exemption. The proposed rules provide issuers of covered investment
contracts with additional capital raising options to choose from.
Issuers of covered investment contracts would have no obligation to
rely upon provisions of the proposed rules. Therefore, they likely will
only choose to rely upon provisions of the proposed rules to raise
capital when doing so is more beneficial to them than the next best
alternative. The analysis in Table 8 assumes a certain number of
offerings under each exemption each year, based on the estimates
provided in section V.\576\ The monetized costs and benefits are based
on the total number of annual offerings estimated and would increase or
decrease depending on whether more issuers or fewer issuers make
offerings under Regulation Crypto Assets.
---------------------------------------------------------------------------
\575\ This approach is consistent with OMB Circular A-4. See
Circular A-4, at 31-34 (stating that, ``[f]or regulatory analysis,
[agencies] should provide estimates of net benefits using both 3
percent and 7 percent'' discount rates and discussing why those
rates are reasonable default rates).
\576\ For an explanation of the basis for the estimate of the
number of annual offerings used in this analysis, see supra section
V.B.
[GRAPHIC] [TIFF OMITTED] TP21AU26.066
Table 9 reports annualized monetized benefits and costs using real
discount rates of three percent and seven percent over a 10-year
horizon.\577\ The lump sum present values of monetized benefits and
costs reported in Table 8 are converted in Table 9 into a constant
stream of annualized benefits and costs over a 10-year time horizon,
starting in 2026.\578\ Annualized benefits and costs may differ from
the recurring monetized annual benefits and costs discussed earlier in
this economic analysis because they incorporate the timing of benefits
and costs, through discounting,
---------------------------------------------------------------------------
\577\ This approach is consistent with the recommended treatment
of benefits and costs over time in Circular A-4. See Circular A-4,
at 45 (``You should present annualized benefits and costs using real
discount rates of 3 and 7 percent.'').
\578\ For each discount rate, the annualized monetized benefits
(costs, respectively) in Table 9 represent the constant annual
stream of benefits (costs, respectively) whose present value over
the 10-year horizon equates the corresponding present value in Table
8. See note b, Table 9 for additional calculation details.
---------------------------------------------------------------------------
[[Page 54604]]
and combine one-time and recurring benefits and costs.\579\
---------------------------------------------------------------------------
\579\ The annualized benefits and costs present these values
over the 10-year time horizon, starting in the present year.
[GRAPHIC] [TIFF OMITTED] TP21AU26.067
In sum, Tables 8 and 9 report in two alternative ways expected
total benefits and costs, across all affected entities, which are
monetized in our economic analysis, using real discount rates of three
percent and seven percent over a 10-year time horizon.
VII. Congressional Review Act
For purposes of Subtitle E of the Small Business Regulatory
Enforcement Fairness Act of 1996 (also known as the Congressional
Review Act),\580\ the Commission must seek OMB's determination as to
whether a final regulation constitutes a ``major rule.'' Under the
Congressional Review Act, a rule is considered ``major'' when, if
adopted, it results or is likely to result in: (1) an annual effect on
the U.S. economy of $100 million or more; (2) a major increase in costs
or prices for consumers or individual industries; or (3) significant
adverse effect on competition, investment, or innovation.\581\
---------------------------------------------------------------------------
\580\ See 5 U.S.C. chapter 8.
\581\ See 5 U.S.C. 804(2) (defining ``major rule'').
---------------------------------------------------------------------------
To help inform OMB's determination as to whether any final rule
that results from the proposal would be a ``major rule,'' we solicit
comment and data on: (1) the potential effect of the proposed rules on
the U.S. economy on an annual basis; (2) any potential increase in
costs or prices for consumers or individual industries; and (3) any
potential adverse effect on competition, investment, or innovation.
Commenters are requested to provide empirical data and other factual
support for their views, to the extent possible, to inform OMB's
determination regarding whether any final rule following this proposal
is likely to be a ``major rule'' for the purposes of the Congressional
Review Act.
VIII. Initial Regulatory Flexibility Act Analysis
When an agency issues a rulemaking proposal, the Regulatory
Flexibility Act (``RFA'') \582\ requires the agency to prepare and make
available for public comment an Initial Regulatory Flexibility Analysis
(``IRFA'') that will describe the impact of the proposed rules on small
entities.\583\ We have prepared, and made available for public comment,
the following IRFA, in accordance with the RFA. This IRFA relates to
proposed Regulation Crypto Assets, which is described in section II
above.
---------------------------------------------------------------------------
\582\ 5 U.S.C. 601 et seq.
\583\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------
A. Reasons for, and Objectives of, the Proposed Action
The proposed rules are intended to create a tailored offering
regime for covered investment contracts to facilitate capital formation
and accommodate innovation within the crypto asset markets while
ensuring that investors are adequately protected and provided with the
information they need to make informed investment decisions. The
proposed rules would be set forth in a new regulation titled
``Regulation Crypto Assets'' and would include two exemptions from the
registration requirements of section 5 of the Securities Act:
The startup exemption, which would permit offerings of up
to $5 million during a four-year period; and
The fundraising exemption, which would permit offerings of
up to $75 million during each 12-month period.
Under both exemptions, issuers would be required to make certain
principles-based narrative disclosures available to their investors. In
addition, issuers using the fundraising exemption would be required to
provide financial statements and be subject to ongoing reporting
requirements. The proposed rules also would include a conditional safe
harbor from the term ``investment contract'' in the definitions of
``security'' in the Securities Act and the Exchange Act. If the
conditions of that proposed safe harbor are satisfied, a crypto asset
would be deemed not to be subject to an investment contract for
purposes of those definitions of ``security.'' The reasons for, and
objectives of, the proposed rules are discussed in more detail in
section II above.
B. Legal Basis
The rules contained in this release are being proposed under the
authority set forth in the Securities Act, particularly sections 3(b),
18, 19(a), and 28 thereof, and the Exchange Act, particularly
[[Page 54605]]
sections 3(b), 12, 13, 15, 23(a), and 36 thereof.
C. Small Entities Subject to the Proposed Rules
The proposed rules would affect some issuers that are small
entities. The RFA defines ``small entity'' to mean ``small business,''
``small organization,'' or ``small governmental jurisdiction.'' \584\
For purposes of the RFA, under 17 CFR 230.157 and 17 CFR 240.0-10(a),
an issuer, other than an investment company, is a ``small business'' or
``small organization'' if it had total assets of $5 million or less on
the last day of its most recent fiscal year and is engaged or proposing
to engage in an offering of securities not exceeding $5 million.
---------------------------------------------------------------------------
\584\ 5 U.S.C. 601(6).
---------------------------------------------------------------------------
It is difficult to predict the number of small businesses that
would use proposed Regulation Crypto Assets that would qualify as a
``small entity'' due to the lack of reliable data or information that
would allow us to estimate the number of issuers that would be able to
rely on the proposed rules or that are likely to use them in the
future. Nevertheless, we believe that the proposed rules will be used
by many issuers that are considered small entities because the proposed
rules would create an offering and disclosure framework specifically
tailored to covered investment contracts, which would allow issuers to
avoid undue costs. Particularly, the startup exemption, through its
offering limit and tailored disclosure requirements, is designed to
allow small entities in early stages of development that may not find
it practical to do a traditional public offering to raise capital at a
lower cost compared to some of the existing exemptions. Moreover,
because the startup exemption would be available to entities,
individuals, or a group of individuals or entities, it would be
especially useful for smaller or early-stage issuers that may not have
formed a legal entity.
As discussed above, we analyzed data available on the potential
number of issuers that made crypto asset-related offerings under
Regulation D, Regulation A, or Regulation Crowdfunding.\585\ Based on
this analysis, and for the reasons discussed above, we believe that at
least 89 small entities will conduct offerings under the proposed rules
per year.
---------------------------------------------------------------------------
\585\ See supra section IV.A.
---------------------------------------------------------------------------
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
If adopted, the proposed rules would require the filing of new
forms along with tailored disclosures (and, for one of the new forms,
the use of XML), which would add to the compliance costs for issuers
under the new offering regime for covered investment contracts. In
addition, compliance with the proposed rules may require the use of
professional skills, such as lawyers, accountants and auditors,
financial managers, and information technology managers.\586\ The
proposed rules are discussed in detail in section II above. The
economic impact, including the estimated compliance costs and paperwork
burdens, of the proposed rules are discussed in detail in section IV
and section V above.
---------------------------------------------------------------------------
\586\ See supra note 550.
---------------------------------------------------------------------------
The proposed rules would apply to small entities to the same extent
as other entities, irrespective of size. We expect that the nature of
any benefits and costs associated with the proposed rules to be
generally similar for large and small entities. We also anticipate that
the economic benefits and costs of the proposed rules likely could vary
widely among all entities, including small entities, primarily based on
whether they conduct offerings of covered investment contracts and how
frequently they do so.
As noted in section IV.A.1 above, we acknowledge that the proposed
rules' compliance costs may be proportionally higher for smaller
issuers than for larger issuers. We are unable to quantify or estimate
with any degree of certainty the costs that a particular issuer may
incur under the proposed rules. As noted in section V.C above, however,
the estimated burdens associated with the proposed rules represent the
average burden for all issuers, both large and small, and we recognize
that those burdens likely will vary among individual issuers and from
year to year based on a number of factors, including the nature of
their business.
E. Duplicative, Overlapping, or Conflicting Federal Rules
We do not believe the proposed rules would duplicate, overlap, or
conflict with other existing Federal rules.
F. Significant Alternatives
The RFA directs us to consider alternatives that would accomplish
our stated objectives, while minimizing any significant adverse impact
on small entities. In connection with the proposed rules, we considered
the following alternatives:
Establishing different compliance or reporting
requirements or timetables that take into account the resources
available to small entities;
Clarifying, consolidating, or simplifying compliance and
reporting requirements under the rules for small entities;
Using performance rather than design standards; and
Exempting small entities from all or part of the
requirements.\587\
---------------------------------------------------------------------------
\587\ See supra section IV.D.
---------------------------------------------------------------------------
The proposed rules are intended to create a tailored offering
regime for covered investment contracts to facilitate capital formation
and accommodate innovation within the crypto asset markets while
ensuring that investors are adequately protected and provided with the
information they need to make informed investment decisions. The
disclosure, some of which would be provided in a machine-readable
format, should permit investors to more quickly and efficiently
evaluate information relating to offerings of covered investment
contracts, on a more timely basis.
While we acknowledge that small entities are more likely to be
affected by the costs of additional disclosure, we note that smaller
entities may benefit significantly from the Commission's proposed
exemptions because they would provide those entities with greater
access to capital.\588\ In addition, we note that the proposed
exemptions could also promote competition between small and larger
issuers of covered investment contracts because smaller issuers may be
able to raise capital more easily given the likely decreased
costs.\589\
---------------------------------------------------------------------------
\588\ See supra section IV.A.
\589\ See supra section IV.C.
---------------------------------------------------------------------------
Moreover, because small entities are more likely to have relatively
high information asymmetries, we believe that investors in small
entities will have a particular need for the information required by
the proposed rules in a timely manner, and we have determined small
entities should not be exempt from all or part of these requirements or
be permitted delayed compliance. We note, however, that various aspects
of the proposed rules are intended to minimize issuers' compliance
costs. For example, we have proposed principles-based disclosure
requirements in Rule 103, applicable to both the startup exemption and
the fundraising exemption, which may reduce compliance costs relative
to a more prescriptive disclosure requirement. In addition, proposed
Rule 200(d)(1) would require the issuer to make the
[[Page 54606]]
information described in Rule 103 publicly accessible, free of charge,
at the website address specified in the notice of reliance at or prior
to the time that the notice of reliance is filed with the Commission.
This proposed requirement is consistent with our understanding of
current practice in many ICOs (in which the project's whitepaper is
posted on the developer's public website) and is intended to be
compatible with this existing practice in order to limit issuers'
compliance costs, especially in view of the fact that many of these
issuers are smaller and may not be familiar with EDGAR. These aspects
of the proposed rules that are intended to reduce issuers' compliance
costs may be particularly beneficial to small entities and, therefore,
balance the objectives of the proposed rules with the needs of small
entities for additional flexibilities that will mitigate compliance
costs.
We have used design rather than performance standards in connection
with the proposed rules because we are seeking specific information
relating to an issuer's offering of covered investment contracts with
the goal of enabling investors to better analyze those offerings. Thus,
the objectives of the proposed rules are unlikely to be met using a
performance standard.
G. Request for Comment
We encourage the submission of comments with respect to any aspect
of this IRFA. In particular, we request comments regarding:
The number of small entities that may be affected by the
proposed rules;
The existence or nature of the potential impact of the
proposed rules on small entities discussed in the analysis;
How the proposed rules could further lower the burden on
small entities; and
How to quantify the impact of the proposed rules.
Commenters are asked to describe the nature of any impact and
provide empirical data supporting the extent of the impact. Comments
will be considered in the preparation of the Final Regulatory
Flexibility Analysis, if the proposed rules are adopted, and will be
placed in the same public file as comments on the proposed rules
themselves.
Statutory Authority
The rules and forms contained in this document are being proposed
under the authority set forth in the Securities Act, particularly,
sections 3(b), 18, 19(a), and 28 thereof, 15 U.S.C. 77a et seq., and
the Exchange Act, particularly, sections 3(b), 12, 13, 23(a) and 36
thereof, 15 U.S.C. 78a et seq.
List of Subjects
17 CFR Part 200 and 201
Administrative practice and procedure, Authority delegations
(Government agencies), Organization and functions (Government
agencies).
17 CFR Parts 228, 230, and 239
Reporting and recordkeeping requirements, Securities.
17 CFR Part 232
Administrative practice and procedure, Electronic filing,
Investment companies, Reporting and recordkeeping requirements,
Securities.
Text of the Proposed Amendments
For the reasons stated in the preamble, the Commission is proposing
to amend Title 17, Chapter II, of the Code of Federal Regulations as
follows:
PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS
0
1. The authority citation for part 200 continues to read as follows:
Authority: 5 U.S.C. 552, 552a, 552b, and 557; 11 U.S.C. 901 and
1109(a); 15 U.S.C. 77c, 77e, 77f, 77g, 77h, 77j, 77o, 77q, 77s, 77u,
77z-3, 77ggg(a), 77hhh, 77sss, 77uuu, 78b, 78c(b), 78d, 78d-1, 78d-
2, 78e, 78f, 78g, 78h, 78i, 78k, 78k-1, 78l, 78m, 78n, 78o, 78o-4,
78q, 78q-1, 78t-1, 78u, 78w, 78ll(d), 78mm, 78eee, 80a-8, 80a-20,
80a-24, 80a-29, 80a-37, 80a-41, 80a-44(a), 80a-44(b), 80b-3, 80b-4,
80b-5, 80b-9, 80b-10(a), 80b-11, 7202, and 7211 et seq.; 29 U.S.C.
794; 44 U.S.C. 3506 and 3507; Reorganization Plan No. 10 of 1950 (15
U.S.C. 78d); sec. 8G, Pub. L. 95-452, 92 Stat. 1101 (5 U.S.C. App.);
sec. 913, Pub. L. 111-203, 124 Stat. 1376, 1827; sec. 3(a), Pub. L.
114-185, 130 Stat. 538; E.O. 11222, 30 FR 6469, 3 CFR, 1964-1965
Comp., p. 36; E.O. 12356, 47 FR 14874, 3 CFR, 1982 Comp., p. 166;
E.O. 12600, 52 FR 23781, 3 CFR, 1987 Comp., p. 235; Information
Security Oversight Office Directive No. 1, 47 FR 27836; and 5 CFR
735.104 and 5 CFR parts 2634 and 2635, unless otherwise noted.
0
2. Amend Sec. 200.30-1 by adding paragraph (n) to read as follows:
Sec. 200.30-1 Delegation of authority to Director of Division of
Corporation Finance.
* * * * *
(n) With respect to the Securities Act of 1933 (15 U.S.C. 77a et
seq.) and Regulation Crypto Assets (17 CFR part 228):
(1) To authorize the granting of applications under Sec. 228.104
of this chapter upon a showing of good cause that it is not necessary
under the circumstances that an exemption under Regulation Crypto
Assets be denied;
(2) To determine the date and time of qualification for offering
statements and amendments to offering statements pursuant to Sec.
228.302(e) of this chapter;
(3) To consent to the withdrawal of an offering statement or to
declare an offering statement abandoned pursuant to Sec. 228.307 of
this chapter; and
(4) To deny a transition report filing pursuant to Sec. 228.307 of
this chapter.
PART 201--RULES OF PRACTICE
Subpart D--Rules of Practice
0
3. The authority citation for Part 201, Subpart D, continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s, 77u, 77sss,
78c(b), 78d-1, 78d-2, 78l, 78m, 78n, 78o(d), 78o-3, 78o-10(b)(6),
78s, 78u-2, 78u-3, 78v, 78w, 80a-8, 80a-9, 80a-37, 80a-38, 80a-39,
80a-40, 80a-41, 80a-44, 80b-3, 80b-9, 80b-11, 80b-12, 7202, 7215,
and 7217.
0
4. Amend Sec. 201.431 by revising paragraph (e)(3)to read as follows:
Sec. 201.431 Commission consideration of actions made pursuant to
delegated authority.
* * * * *
(e) * * *
(3) To determine the effectiveness of a registration statement, or
a post-effective amendment thereto, or the qualification of an offering
statement, or a post-qualification amendment hereto, as authorized by
17 CFR 200.30-1(a)(1), 200.30-1(a)(5), 200.30-1(b)(2), 200.30-1(f)(1),
200.30-1(f)(6), and 200.30-1(n)(2), or 17 CFR 200.30-5(b), 200.30-
5(c)(3), 200.30-5(c)(4), and 200.30-5(c)(6).
* * * * *
0
5. Add part 228 to read as follows:
PART 228--REGULATION CRYPTO ASSETS
Authority: 15 U.S.C. 77c, 77r(b)(3), 77s, 77z-3, 78c(b), 78w,
and 78mm.
Subpart A--General
Sec. 228.100 Definitions of terms used in Regulation Crypto Assets.
As used in this Regulation Crypto Assets (17 CFR Part 228) and in
Form 1-CRYPTO, Form 1-KC, Form 1-SC, Form 1-UC, Form TR, and Form NOR
(Sec. Sec. 239.600 through 605 of this chapter), all terms have the
same meanings as in Rule 405 (Sec. 230.405 of this chapter), except
that all references to registrant in those definitions shall refer to
the issuer of the securities to be offered and sold under Regulation
Crypto Assets. In addition, the following definitions apply unless the
context otherwise requires:
[[Page 54607]]
Aggregate offering price and aggregate sales. ``Aggregate offering
price'' means the sum of all cash and other consideration to be
received for the covered investment contracts being offered.
``Aggregate sales'' means the gross proceeds for all securities sold
pursuant to other offering statements under Regulation Crypto Assets
within the 12 months before the start of, and during, the current
offering of securities. Where a mixture of cash and non-cash
consideration is to be received, the aggregate offering price must be
based on the price at which the covered investment contracts are
offered for cash. Any portion of the aggregate offering price or
aggregate sales attributable to cash received in a foreign currency
must be translated into United States currency at a currency exchange
rate in effect on, or at a reasonable time before, the date of the sale
of the covered investment contracts. If covered investment contracts
are not offered for cash, the aggregate offering price or aggregate
sales must be based on the value of the consideration as established by
bona fide sales of that consideration made within a reasonable time,
or, in the absence of sales, on the fair value as determined by an
accepted standard. Valuations of non-cash consideration must be
reasonable at the time made.
Associated crypto application. ``Associated crypto application''
means, with respect to a crypto asset, the smart contract or similar
executable software program that is deployed to an associated crypto
network and within which such crypto asset may be used for the
transmission or storage of value or for which the crypto asset
facilitates access or participation.
Associated crypto network. ``Associated crypto network'' means,
with respect to a crypto asset, the blockchain or similar distributed
ledger technology network on which such crypto asset is generated,
minted, or mined.
Business day. ``Business day'' means any day except Saturdays,
Sundays, or Federal holidays.
Covered investment contract. ``Covered investment contract'' means
a contract, transaction, or scheme involving a crypto asset that
constitutes an investment contract; provided that the investment
contract must meet the following requirements: (1) a crypto asset is
subject to the investment contract; (2) such crypto asset is not a
security; and (3) no asset other than such crypto asset (including any
security or non-security asset) is subject to the investment contract.
Covered transaction. ``Covered transaction'' means an offer, sale,
or other distribution of a covered investment contract in reliance on
the startup exemption, including, but not limited to:
(1) Any public or private offering, including a distribution, of a
covered investment contract in one or a series of capital raising
transactions; or
(2) Any public or private offering, including a distribution and
transactions referred to as ``airdrops,'' of a covered investment
contract in one or a series of transactions in exchange for, in
recognition of, as or incentive for past or future use of an associated
crypto network or associated crypto application, or as a reward or
incentive for conducting activities primarily related to operating,
governing, or securing an associated crypto network or associated
crypto application.
Crypto asset. ``Crypto asset'' means any digital representation of
value that is recorded on a cryptographically-secured distributed
ledger.
Final offering circular. ``Final offering circular'' means:
(1) If the issuer is not relying on Rule 302(b) ((Sec.
228.302(b)), the more recent of:
(i) The current offering circular contained in a qualified offering
statement; and
(ii) Any offering circular filed pursuant to Rule 302(f) (Sec.
228.302(f)).
(2) If the issuer is relying on Rule 302(b) ((Sec. 228.302(b)),
the more recent of:
(i) The offering circular filed pursuant to Rule 302(f)(1) or (3)
(Sec. 228.302(f)(1) or (3)); and
(ii) Any subsequent offering circular filed pursuant to Rule 302(f)
(Sec. 228.302(f)).
Related person. ``Related person'' means, with respect to an
issuer: founders, promoters, employees, affiliates, and any person that
is a director, officer, trustee, consultant, contractor, or advisor to
the issuer, in each case together with any immediate family members.
Subject crypto asset. ``Subject crypto asset'' means a crypto asset
that is subject to a covered investment contract.
Sec. 228.101 General provisions.
(a) Non-exclusive. Attempted compliance with any exemption or safe
harbor in this Regulation Crypto Assets does not act as an exclusive
election; an issuer also may claim the availability of any other
applicable exemption or safe harbor for which it meets the
requirements.
(b) Integration. To determine whether offers and sales should be
integrated, see Sec. 230.152.
(c) Electronic filing. Documents filed or otherwise provided to the
Commission pursuant to this Regulation Crypto Assets must be submitted
in electronic format by means of EDGAR in accordance with the
electronic filing rules set forth in Regulation S-T (part 232 of this
chapter).
(d) Insignificant deviations.
(1) A failure to comply with a term, condition, or requirement of
this Regulation Crypto Assets will not result in the loss of any
exemption under this Regulation Crypto Assets from the requirements of
section 5 of the Securities Act for any offer or sale to a particular
individual or entity, if the person relying on the exemption
establishes that:
(i) The failure to comply did not pertain to a term, condition, or
requirement directly intended to protect that particular individual or
entity;
(ii) The failure to comply was insignificant with respect to the
offering as a whole; and
(iii) A good faith and reasonable attempt was made to comply with
all applicable terms, conditions, and requirements of this Regulation
Crypto Assets.
(2) A transaction made in reliance upon an exemption under
Regulation Crypto Assets must comply with all applicable terms,
conditions, and requirements of the regulation. Where an exemption is
established only through reliance upon paragraph (1) of this section,
the failure to comply is nonetheless actionable by the Commission under
section 20 of the Securities Act.
(3) Paragraph (d)(1) of this section will not preclude the
Commission from bringing an enforcement action seeking any appropriate
relief or a proceeding under Sec. 228.306 for an issuer's failure to
comply with all applicable terms, conditions, and requirements of this
Regulation Crypto Assets.
(e) Number of units and price per unit.
(1) For purposes of determining the number of units of covered
investment contracts as required by any rule or form in Regulation
Crypto Assets, one unit of a covered investment contract is equivalent
to one unit of the subject crypto asset.
(2) For purposes of determining the price per unit of a covered
investment contract as required by any rule or form in Regulation
Crypto Assets, such price should be determined by reference to the
price per unit of the subject crypto asset.
Note to paragraph (e). For example, if an issuer sells a
covered investment contract to
[[Page 54608]]
an investor for $100, and the covered investment contract
contemplates that the issuer will distribute 10 units of the subject
crypto asset to the investor, then at the time of the sale of the
covered investment contract, the investor is deemed to have
purchased 10 units of the covered investment contract at a price of
$10 per unit of covered investment contract.
Sec. 228.102 Inflation adjustment for offering limits.
The Commission periodically, but not less than once every five
years, must adjust the offering amount limitations in Sec. 228.200 and
subpart C of this Regulation Crypto Assets to reflect any changes in
the Consumer Price Index for All Urban Consumers published by the
Bureau of Labor Statistics of the Department of Labor.
Sec. 228.103 Disclosure requirements.
(a) General disclosure principles. Information provided under
Regulation Crypto Assets should be tailored to the issuer, the subject
crypto asset, and the associated crypto network or associated crypto
application and should be presented in clear, concise, and
understandable language, without overly relying on technical
terminology or jargon. Each issuer should consider its own facts and
circumstances when preparing this information. Information provided
should address the current stage of development of the issuer, the
subject crypto asset, and the associated crypto network or associated
crypto application and should clearly delineate any forward-looking or
future plans of development. Information provided should be consistent
with the issuer's public statements in its established public
communication channels (such as its website or official social media
accounts) and promotional materials (such as whitepapers) relating to
material aspects of the issuer, the subject crypto asset, and the
associated crypto network or associated crypto application. Issuers
should note that disclosure is not required to be provided where a
particular disclosure requirement is not applicable, or responsive
information is unknown or not reasonably available.
(b) Disclosure to be provided. An issuer that is relying on Sec.
228.200 or subpart C of this Regulation Crypto Assets must disclose the
following information in accordance with the requirements set forth in
those exemptions:
(1) Covered investment contract. A description of the material
terms of the covered investment contract, including the issuer's
representations or promises to engage in essential managerial efforts
under the covered investment contract and its progress with respect to
such representations or promises, a purchaser's obligations under the
covered investment contract, any conditions to the covered investment
contract, and any other material terms.
(2) Offering. A description of the material terms of the offering,
including:
(i) The number of units of covered investment contracts to be
offered, the purchase price per unit (or how the purchase price per
unit will be determined), the duration of the offering period, and any
qualifications for or restrictions on purchasers in the offering;
(ii) Any material agreements in furtherance of the distribution of
covered investment contracts in the offering;
(iii) The estimated net offering sale proceeds and expenses to be
paid with the offering proceeds;
(iv) The intended use of proceeds from any sales in the offering;
and
(v) The website address at which any whitepapers or other offering
materials that the issuer prepared and distributed, either publicly or
to prospective purchasers in connection with the offering, are publicly
accessible, free of charge.
(3) Subject crypto asset. A description of the material aspects of
the subject crypto asset.
(4) Management, related persons, and conflicts of interest. A
description of:
(i) The material aspects of the issuer's management and related
persons;
(ii) The material aspects of any conflicts of interest or related
person transactions involving the issuer; and
(iii) Whether related persons are subject to any transfer or resale
restriction(s) with respect to the covered investment contract or
subject crypto asset and, if so, the material terms of such
restriction(s).
(5) Associated crypto network/application; plan of development. A
description of the material aspects of the associated crypto network or
associated crypto application and the issuer's plan of development with
respect to the associated crypto network or associated crypto
application, including the issuer's progress with respect to its plan
of development.
(6) Security; source code. A description of the material aspects of
the security of the subject crypto asset and the associated crypto
network or associated crypto application and, to the extent the issuer
has made it publicly available, the website address at which the code
underlying the associated crypto network or associated crypto
application (also referred to as ``source code'') is accessible.
(7) Subject crypto asset economics and allocations. A description
of the material aspects of the subject crypto asset's economics and
allocations, including the subject crypto asset's supply, pricing,
lockups, distribution methods, holdings by related persons, and release
schedules, the associated crypto network or associated crypto
application's mechanisms for generating and destroying subject crypto
assets, and methods to verify the subject crypto asset's transaction
history.
(8) Governance. A description of the material aspects of the
subject crypto asset's and associated crypto network's or associated
crypto application's governance mechanisms, smart contract governance
mechanisms, and permissions.
(9) Subject crypto asset ecosystem. A description of the material
aspects of the subject crypto asset's current and anticipated ecosystem
(i.e., the system or network of contributors or participants that
support and interact with the subject crypto asset and associated
crypto network or associated crypto application), ``onchain'' and
``offchain,'' including information regarding the technology
infrastructure, types of participants, and other parties and systems
using the subject crypto asset and the associated crypto network or
associated crypto application.
(10) Risk factors. A description, in short, concise statements, of
the material factors that make an investment in the offering
speculative or risky, including risks related to the covered investment
contract, the issuer, the subject crypto asset, and the associated
crypto network or associated crypto application. This description must
avoid generalized statements and include only factors specific to the
covered investment contract, the issuer, the subject crypto asset, and
the associated crypto network or associated crypto application.
Sec. 228.104 Disqualification.
(a) Disqualification events. No exemption under Regulation Crypto
Assets is available for a sale of securities if the issuer or any type
of person listed in Sec. 230.262(a) of this chapter would be subject
to disqualification under Sec. 230.262 of this chapter; provided,
however, that such disqualification shall not apply with respect to any
conviction, order, judgment, decree, suspension, expulsion, or bar that
occurred or was issued before [INSERT EFFECTIVE DATE OF FINAL RULE, IF
ADOPTED].
Instruction to paragraph (a). References to ``Sec. Sec. 230.251
through 230.263'' or ``Regulation A'' in
[[Page 54609]]
Sec. 230.262(a) should, for purposes of this paragraph, be read as
references to ``Sec. Sec. 228.100 through 228.500'' or ``Regulation
Crypto Assets,'' as appropriate.
(b) Disclosure of prior ``bad actor'' events. The issuer must
include in the offering circular, or otherwise furnish to each
purchaser, a reasonable time prior to sale, a description in writing of
any matters that would have triggered disqualification under paragraph
(a) of this section but occurred before [INSERT EFFECTIVE DATE OF FINAL
RULE, IF ADOPTED]. The failure to provide such information will not
prevent an issuer from relying on an exemption in this Regulation
Crypto Assets if the issuer establishes that it did not know and, in
the exercise of reasonable care, could not have known of the existence
of the undisclosed matter or matters.
Instruction to paragraph (b). An issuer will not be able to
establish that it has exercised reasonable care unless it has made, in
light of the circumstances, factual inquiry into whether any
disqualifications exist. The nature and scope of the required factual
inquiry will vary based on the facts and circumstances concerning,
among other things, the issuer and the other offering participants.
Subpart B--Startup Exemption
Sec. 228.200 Startup exemption.
(a) Exemption. A covered transaction is exempt from the
registration requirements of section 5 of the Securities Act if the
conditions in paragraph (b) of this section are satisfied.
(b) Conditions.
(1) Four-year duration. The covered transaction must occur during
the period beginning after the issuer has filed a notice of reliance in
accordance with paragraph (c)(1) of this section and ending on the date
that is the earlier of:
(i) Four years after the date of such filing; and
(ii) The date on which the issuer files a transition report
pursuant to paragraph (e) of this section.
(2) Issuer eligibility. The issuer may be an entity, an individual,
or a group of individuals or entities. If the issuer is a group of
individuals or entities, each member of the group (or an authorized
person of such member) must sign the notice of reliance and transition
report (as discussed in paragraphs (c) and (e) of this section,
respectively) and provide the certifications thereunder, and each
member of the group individually, and the group collectively, must
satisfy each condition in this paragraph (b).
(3) One-time use. The issuer and its affiliates must not have
previously relied on the exemption in this section with respect to the
same subject crypto asset, or a substantially similar crypto asset,
other than with respect to covered transactions that occurred during
the period set forth in paragraph (b)(1) of this section.
(4) Offering limit. The sum of the aggregate offering price in the
covered transaction plus the gross proceeds from all covered
transactions before the start of and during the current covered
transaction must not exceed $5,000,000.
(5) Disclosure and filing requirements. The issuer must satisfy the
disclosure and filing requirements set forth in paragraphs (c), (d),
and (e) of this section.
(6) General conditions. The issuer must satisfy the applicable
requirements set forth in subpart A of this Regulation Crypto Assets.
(c) Notice of reliance.
(1) The issuer must file with the Commission a notice of reliance
containing the information required by Form NOR (Sec. 239.605) prior
to the commencement of any covered transaction.
(2) The issuer may file an amendment to a previously filed notice
of reliance on Form NOR at any time.
(3) During the period described in paragraph (b)(1) of this
section, the issuer must file an amendment to a previously filed notice
of reliance on Form NOR:
(i) To correct a material mistake of fact or error in the
previously filed notice of reliance, as soon as practicable after
discovery of the mistake or error; or
(ii) To reflect a material change in the information provided in
the previously filed notice of reliance, as soon as practicable after
the change.
(d) Disclosure requirements.
(1) The issuer must make the information described in Sec. 228.103
publicly accessible, free of charge, at the website address specified
in the notice of reliance at or prior to the time that the notice of
reliance is filed with the Commission in accordance with paragraph
(c)(1) of this section.
(2) The issuer must ensure that the information disclosed under
paragraph (d)(1) of this section remains publicly accessible, free of
charge, at the website address specified in the notice of reliance for
the duration of the period described in paragraph (b)(1) of this
section.
(3) During the period described in paragraph (b)(1) of this
section, the issuer must amend the information disclosed under
paragraph (d)(1) of this section within 30 calendar days after the end
of each calendar year if, as of the end of the calendar year, there are
any material changes in the information previously disclosed.
(e) Transition report. The issuer must file with the Commission a
transition report containing the information required by Form TR (Sec.
239.604) no later than four years after the date on which the issuer
filed a notice of reliance in accordance with paragraph (c)(1) of this
section.
Subpart C--Fundraising Exemption
Sec. 228.300 Scope of exemption.
(a) Tier 1 and Tier 2. A public offer or sale of covered investment
contracts (for the purposes of this subpart, ``securities'' or
``eligible securities'') under this subpart is exempt from the
registration requirements of section 5 of the Securities Act.
(1) Tier 1. Offerings under this subpart in which the sum of the
aggregate offering price and aggregate sales by the issuer and its
affiliates does not exceed $20,000,000, including not more than
$6,000,000 offered by all selling securityholders that are affiliates
of the issuer (``Tier 1 offerings'').
(2) Tier 2. Offerings under this subpart in which the sum of the
aggregate offering price and aggregate sales by the issuer and its
affiliates does not exceed $75,000,000, including not more than
$22,500,000 offered by all selling securityholders that are affiliates
of the issuer (``Tier 2 offerings'').
(3) Additional limitation on secondary sales in first year. The
portion of the aggregate offering price attributable to the securities
of selling securityholders shall not exceed 30 percent of the aggregate
offering price of a particular offering in:
(i) The issuer's first offering under this section; or
(ii) Any subsequent offering under this section that is qualified
within one year of the qualification date of the issuer's first
offering.
(b) Issuer. The issuer of the securities:
(1) Is an entity organized under, and subject to, the laws of the
United States, or any State or territory of the United States or the
District of Columbia; provided further that (i) a majority of the
issuer's executive officers or directors must be U.S. citizens or
residents, (ii) more than 50 percent of the issuer's assets must be
located in the United States, and (iii) the issuer's business must be
administered principally in the United States;
[[Page 54610]]
(2) Is not a development stage company that either has no specific
business plan or purpose, or has indicated that its business plan is to
merge with or acquire an unidentified company or companies;
(3) Is not an investment company registered or required to be
registered under the Investment Company Act of 1940 (``Investment
Company Act'') (15 U.S.C. 80a-1 et seq.) or a business development
company as defined in section 2(a)(48) of the Investment Company Act
(15 U.S.C. 80a-2(a)(48));
(4) Is not, and has not been, subject to any order of the
Commission entered pursuant to section 12(j) (15 U.S.C. 78l(j)) of the
Exchange Act within five years before the filing of the offering
statement; provided, however, that this exclusion will not apply to any
issuer subject to any order of the Commission entered pursuant to
section 12(j) (15 U.S.C. 78l(j)) of the Exchange Act before [INSERT
EFFECTIVE DATE OF FINAL RULE, IF ADOPTED].
(5) Has filed with the Commission all reports required to be filed,
if any, pursuant to Sec. 228.305 or pursuant to section 13 or 15(d) of
the Exchange Act (15 U.S.C. 78m or 15 U.S.C. 78o) during the two years
before the filing of the offering statement (or for such shorter period
that the issuer was required to file such reports); and
(6) Has satisfied the applicable requirements set forth in subpart
A of this Regulation Crypto Assets.
(c) Offering conditions--
(1) Offers.
(i) Except as allowed by Sec. 228.304, no offer of securities may
be made unless an offering statement has been filed with the
Commission.
(ii) After the offering statement has been filed, but before it is
qualified:
(A) Oral offers may be made;
(B) Written offers pursuant to Sec. 228.303 may be made; and
(C) Solicitations of interest and other communications pursuant to
Sec. 228.304 may be made.
(iii) Offers may be made after the offering statement has been
qualified, but any written offers must be accompanied with or preceded
by the most recent offering circular filed with the Commission for such
offering.
(2) Sales.
(i) No sale of securities may be made:
(A) Until the offering statement has been qualified;
(B) By issuers that are not currently subject to the reporting
requirements of Sec. 228.305(a), until a Preliminary Offering Circular
is delivered at least 48 hours before the sale to any person that
before qualification of the offering statement had indicated an
interest in purchasing securities in the offering, including those
persons that responded to an issuer's solicitation of interest
materials; and
(C) Unless the purchaser is either an accredited investor (as
defined in Sec. 230.501 of this chapter) or the aggregate purchase
price to be paid by the purchaser for the securities is no more than 10
percent of the greater of that purchaser's:
(1) Annual income or net worth if a natural person (with annual
income and net worth for such natural person purchaser determined as
provided in Sec. 230.501 of this chapter); or
(2) Revenue or net assets for such purchaser's most recently
completed fiscal year end if a non-natural person.
(D) The issuer may rely on a representation of the purchaser when
determining compliance with the 10 percent investment limitation in
paragraph (c)(2)(i)(C), provided that the issuer does not know at the
time of sale that any such representation is untrue.
(ii) In a transaction that represents a sale by the issuer or an
underwriter, or a sale by a dealer within 90 calendar days after
qualification of the offering statement, each underwriter or dealer
selling in such transaction must deliver to each purchaser from it, not
later than two business days following the completion of such sale, a
copy of the Final Offering Circular, subject to the following
provisions:
(A) If the sale was by the issuer and was not effected by or
through an underwriter or dealer, the issuer is responsible for
delivering the Final Offering Circular as if the issuer were an
underwriter;
(B) For continuous or delayed offerings under paragraph (c)(3) of
this section, the 90-calendar day period for dealers shall commence on
the day of the first bona fide offering of securities under such
offering statement;
(C) If the security is listed on a registered national securities
exchange, no offering circular need be delivered by a dealer more than
25 calendar days after the later of the qualification date of the
offering statement or the first date on which the security was bona
fide offered to the public;
(D) No offering circular need be delivered by a dealer if the
issuer is subject, immediately prior to the time of the filing of the
offering statement, to the reporting requirements of Sec. 228.305(a);
and
(E) The Final Offering Circular delivery requirements set forth in
paragraph (c)(2)(ii) of this section may be satisfied by delivering a
notice to the effect that the sale was made pursuant to a qualified
offering statement that includes the uniform resource locator
(``URL''), which, in the case of an electronic-only offering, must be
an active hyperlink, where the Final Offering Circular, or the offering
statement of which such Final Offering Circular is part, may be
obtained on EDGAR and contact information sufficient to notify a
purchaser where a request for a Final Offering Circular can be sent and
received in response.
(3) Continuous or delayed offerings.
(i) Continuous or delayed offerings may be made under this
Regulation Crypto Assets, so long as the offering statement pertains
only to:
(A) Securities that are to be offered or sold solely by or on
behalf of a person or persons other than the issuer, a subsidiary of
the issuer, or a person of which the issuer is a subsidiary;
(B) Securities that are to be offered and sold pursuant to an
employee benefit plan of the issuer;
(C) Securities that are to be issued upon the exercise of
outstanding options, warrants, or rights;
(D) Securities that are to be issued upon conversion of other
outstanding securities;
(E) Securities that are pledged as collateral; or
(F) Securities the offering of which will be commenced within two
business days after the qualification date, will be made on a
continuous basis, may continue for a period in excess of 30 calendar
days from the date of initial qualification, and will be offered in an
amount that, at the time the offering statement is qualified, is
reasonably expected to be offered and sold within two years from the
initial qualification date. These securities may be offered and sold
only if not more than three years have elapsed since the initial
qualification date of the offering statement under which they are being
offered and sold; provided, however, that if a new offering statement
has been filed pursuant to this paragraph (c)(3)(i)(F), securities
covered by the prior offering statement may continue to be offered and
sold until the earlier of the qualification date of the new offering
statement or 180 calendar days after the third anniversary of the
initial qualification date of the prior offering statement. Before the
end of such three-year period, an issuer may file a new offering
statement covering the securities. The new offering statement must
include all the information that would be required at that time in an
offering statement relating to all offerings that it covers. Before the
qualification date of the new offering statement, the issuer may
include as part of such new offering statement any
[[Page 54611]]
unsold securities covered by the earlier offering statement by
identifying on the cover page of the new offering circular, or the
latest amendment, the amount of such unsold securities being included.
The offering of securities on the earlier offering statement will be
deemed terminated as of the date of qualification of the new offering
statement. Securities may be sold pursuant to this paragraph
(c)(3)(i)(F) only if the issuer is current in its annual and semiannual
filings under Sec. 228.305(a), at the time of such sale.
(ii) At the market offerings, by or on behalf of the issuer or
otherwise, are not permitted under this exemption. As used in this
paragraph (c)(3)(ii), the term at the market offering means an offering
of securities at other than a fixed price.
(d) Confidential treatment. A request for confidential treatment
may be made under Sec. 230.406 of this chapter for information
required to be filed, and Sec. 200.83 of this chapter for information
not required to be filed.
Sec. 228.301 Offering statement.
(a) Documents to be included. The offering statement consists of
the contents required by Form 1-CRYPTO (Sec. 239.600) and any other
material information necessary to make the required statements, in
light of the circumstances under which they are made, not misleading.
(b) Filing fees. No fee is payable to the Commission upon either
the submission or filing of an offering statement on Form 1-CRYPTO, or
any amendment to an offering statement.
(c) Signatures. The issuer, its principal executive officer,
principal financial officer, principal accounting officer, and a
majority of the members of its board of directors or other governing
body, must sign the offering statement in the manner prescribed by Form
1-CRYPTO. If a signature is by a person on behalf of any other person,
evidence of authority to sign must be filed, except where an executive
officer signs for the issuer.
(d) Non-public submission. An issuer may submit a draft offering
statement to the Commission for non-public review by the staff of the
Commission before public filing, provided that the offering statement
shall not be qualified less than 15 calendar days after the public
filing with the Commission of:
(1) The initial non-public submission; and
(2) All non-public amendments.
(e) Qualification. An offering statement and any amendment thereto
can be qualified only at such date and time as the Commission may
determine.
(f) Amendments.
(1) General rules for amendments:
(i) Amendments to an offering statement must be signed and filed
with the Commission in the same manner as the initial filing.
Amendments to an offering statement must be filed under cover of Form
1-CRYPTO and must be numbered consecutively in the order in which
filed.
(ii) Every amendment that includes amended audited financial
statements must include the consent of the certifying accountant to the
use of such accountant's certification in connection with the amended
financial statements in the offering statement or offering circular and
to being named as having audited such financial statements.
(iii) Amendments solely relating to Part III of Form 1-CRYPTO must
comply with the requirements of paragraph (f)(1)(i) of this section,
except that such amendments may be limited to Part I of Form 1-CRYPTO,
an explanatory note, and all the information required by Part III of
Form 1-CRYPTO.
(2) Post-qualification amendments must be filed in the following
circumstances for ongoing offerings:
(i) At least every 12 months after the qualification date to
include the financial statements that would be required by Form 1-
CRYPTO as of such date; or
(ii) To reflect any facts or events arising after the qualification
date of the offering statement (or the most recent post-qualification
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the offering
statement.
Sec. 228.302 Offering circular.
(a) Contents. An offering circular must include the information
required by Form 1-CRYPTO for offering circulars.
(b) Information that may be omitted. Notwithstanding paragraph (a)
of this section, a qualified offering circular may omit information
with respect to the public offering price, underwriting syndicate
(including any material relationships between the issuer or selling
securityholders and the unnamed underwriters, brokers, or dealers),
underwriting discounts or commissions, discounts or commissions to
dealers, amount of proceeds, and other items dependent upon the
offering price, delivery dates, and terms of the securities dependent
upon the offering date; provided that the following conditions are met:
(1) The securities to be qualified are offered for cash.
(2) The outside front cover page of the offering circular includes
a bona fide estimate of the range of the maximum offering price and the
maximum number of units of eligible securities to be offered, subject
to the following conditions:
(i) The range must not exceed $2 for offerings where the upper end
of the range is $10 or less or 20 percent if the upper end of the price
range is over $10; and
(ii) The upper end of the range must be used in determining the
aggregate offering price under Sec. 228.300(a).
(3) The offering statement does not relate to securities to be
offered by competitive bidding.
(4) The volume of securities (the number of units of eligible
securities) to be offered may not be omitted in reliance on this
paragraph (b).
Note to paragraph (b). A decrease in the volume of securities
offered or a change in the bona fide estimate of the offering price
range from that indicated in the offering circular filed as part of
a qualified offering statement may be disclosed in the offering
circular filed with the Commission pursuant to Sec. 228.302(f), so
long as the decrease in the volume of securities offered or change
in the price range would not materially change the disclosure
contained in the offering statement at qualification.
Notwithstanding the foregoing, any decrease in the volume of
securities offered and any deviation from the low or high end of the
price range may be reflected in the offering circular supplement
filed with the Commission pursuant to Sec. 228.302(f)(1) or (3) if,
in the aggregate, the decrease in volume and/or change in price
represent no more than a 20 percent change from the maximum
aggregate offering price calculable using the information in the
qualified offering statement. In no circumstances may this paragraph
be used to offer securities where the maximum aggregate offering
price would result in the offering exceeding the limit set forth in
Sec. 228.300(a) or if the change would result in a Tier 1 offering
becoming a Tier 2 offering. An offering circular supplement may not
be used to increase the volume of securities being offered.
Additional securities may only be offered pursuant to a new offering
statement or post-qualification amendment qualified by the
Commission.
(c) Filing of omitted information. The information omitted from the
offering circular in reliance upon paragraph (b) of this section must
be contained in an offering circular filed with the Commission pursuant
to paragraph (g) of this section; except that if such offering circular
is not so filed by the later of 15 business days after the
qualification date of the offering statement or 15 business days after
the qualification of a post-qualification amendment thereto that
contains an offering circular, the information omitted in reliance upon
paragraph (b) of this section must be contained in a qualified post-
qualification amendment to the offering statement.
[[Page 54612]]
(d) Date. An offering circular must be dated approximately as of
the date it was filed with the Commission.
(e) Cover page legend. The cover page of every offering circular
must display the following statement highlighted by prominent type or
in another manner:
The United States Securities and Exchange Commission does not pass
upon the merits of or give its approval to any securities offered or
the terms of the offering, nor does it pass upon the accuracy or
completeness of any offering circular or other solicitation materials.
These securities are offered pursuant to an exemption from registration
with the Commission; however, the Commission has not made an
independent determination that the securities offered are exempt from
registration.
(f) Offering circular supplements.
(1) An offering circular that discloses information previously
omitted from the offering circular in reliance upon Sec. 228.302(b)
must be filed with the Commission no later than two business days
following the earlier of the date of determination of the offering
price or the date such offering circular is first used after
qualification in connection with a public offering or sale.
(2) An offering circular that reflects information other than that
covered in paragraph (f)(1) of this section that constitutes a
substantive change from or addition to the information set forth in the
last offering circular filed with the Commission must be filed with the
Commission no later than five business days after the date it is first
used after qualification in connection with a public offering or sale.
If an offering circular filed pursuant to this paragraph (f)(2)
consists of an offering circular supplement attached to an offering
circular that previously had been filed or was not required to be filed
pursuant to paragraph (f) of this section because it did not contain
substantive changes from an offering circular that previously was
filed, only the offering circular supplement need be filed under
paragraph (f) of this section, provided that the cover page of the
offering circular supplement identifies the date(s) of the related
offering circular and any offering circular supplements thereto that
together constitute the offering circular with respect to the
securities currently being offered or sold.
(3) An offering circular that discloses information, facts or
events covered in both paragraphs (f)(1) and (2) of this section must
be filed with the Commission no later than two business days following
the earlier of the date of the determination of the offering price or
the date it is first used after qualification in connection with a
public offering or sale.
(4) An offering circular required to be filed pursuant to paragraph
(f) of this section that is not filed within the time frames specified
in paragraphs (f)(1) through (3) of this section, as applicable, must
be filed pursuant to this paragraph (f)(4) as soon as practicable after
the discovery of such failure to file.
(5) Each offering circular filed under this section must contain in
the upper right corner of the cover page the paragraphs of paragraphs
(f)(1) through (4) of this section under which the filing is made, and
the file number of the offering statement to which the offering
circular relates.
Sec. 228.303 Preliminary offering circular.
After the filing of an offering statement, but before its
qualification, written offers of securities may be made if they meet
the following requirements:
(a) Outside front cover page. The outside front cover page of the
material bears the caption Preliminary Offering Circular, the date of
issuance, and the following legend, which must be highlighted by
prominent type or in another manner:
An offering statement pursuant to Regulation Crypto Assets relating
to these securities has been filed with the Securities and Exchange
Commission. Information contained in this Preliminary Offering Circular
is subject to completion or amendment. These securities may not be sold
nor may offers to buy be accepted before the offering statement filed
with the Commission is qualified. This Preliminary Offering Circular
shall not constitute an offer to sell or the solicitation of an offer
to buy, nor may there be any sales of these securities in any state in
which such offer, solicitation, or sale would be unlawful. We may elect
to satisfy our obligation to deliver a Final Offering Circular by
sending you a notice within two business days after the completion of
our sale to you that contains the URL where the Final Offering Circular
or the offering statement in which such Final Offering Circular was
filed may be obtained.
(b) Other contents. The Preliminary Offering Circular contains
substantially the information required to be in an offering circular by
Form 1-CRYPTO (Sec. 239.600), except that certain information may be
omitted under Sec. 228.302(b) subject to the conditions set forth in
such rule.
(c) Filing. The Preliminary Offering Circular is filed as a part of
the offering statement.
Sec. 228.304 Solicitations of interest and other communications.
(a) Solicitation of interest. At any time before the qualification
of an offering statement, including before the non-public submission or
public filing of such offering statement, an issuer or any person
authorized to act on behalf of the issuer may communicate orally or in
writing to determine whether there is any interest in a contemplated
securities offering. Such communications are deemed to be an offer of a
security for sale for purposes of the antifraud provisions of the
Federal securities laws. No solicitation or acceptance of money or
other consideration, nor of any commitment, binding or otherwise, from
any person is permitted until qualification of the offering statement.
(b) Conditions. The communications must:
(1) State that no money or other consideration is being solicited,
and if sent in response, will not be accepted;
(2) State that no offer to buy the securities can be accepted and
no part of the purchase price can be received until the offering
statement is qualified, and any such offer may be withdrawn or revoked,
without obligation or commitment of any kind, at any time before notice
of its acceptance given after the qualification date;
(3) State that a person's indication of interest involves no
obligation or commitment of any kind; and
(4) After the public filing of the offering statement:
(i) State from whom a copy of the most recent version of the
Preliminary Offering Circular may be obtained, including a phone number
and address of such person;
(ii) Provide the URL where such Preliminary Offering Circular, or
the offering statement in which such Preliminary Offering Circular was
filed, may be obtained; or
(iii) Include a complete copy of the Preliminary Offering Circular.
(c) Indications of interest. Any written communication under this
rule may include a means by which a person may indicate to the issuer
that such person is interested in a potential offering. This issuer may
require the name, address, telephone number, and/or email address in
any response form included pursuant to this paragraph (c).
(d) Revised solicitations of interest. If solicitation of interest
materials are used after the public filing of the offering statement
and such solicitation of interest materials contain information that is
inaccurate or inadequate in any material respect, revised solicitation
of interest materials must be redistributed in a substantially similar
manner as
[[Page 54613]]
such materials were originally distributed. Notwithstanding the
foregoing in this paragraph (d), if the only information that is
inaccurate or inadequate is contained in a Preliminary Offering
Circular provided with the solicitation of interest materials pursuant
to paragraphs (b)(4)(i) or (ii) of this section, no such redistribution
is required in the following circumstances:
(1) in the case of paragraph (b)(4)(i) of this section, the revised
Preliminary Offering Circular will be provided to any persons making
new inquiries and will be recirculated to any persons making any
previous inquiries; or
(2) in the case of paragraph (b)(4)(ii) of this section, the URL
continues to link directly to the most recent Preliminary Offering
Circular or to the offering statement in which such revised Preliminary
Offering Circular was filed.
Sec. 228.305 Periodic and current reporting; transition report.
(a) Periodic and current reporting. Each issuer that has filed an
offering statement that has been qualified under this Regulation Crypto
Assets must file with the Commission the following periodic and current
reports:
(1) Annual reports. An annual report on Form 1-KC (Sec. 239.601)
for the fiscal year in which the offering statement became qualified
and for any fiscal year thereafter, unless the issuer's obligation to
file such annual report is suspended or terminated, as applicable,
under paragraph (c) or (d) of this section. Annual reports must be
filed within the period specified in Form 1-KC.
(2) Special financial report.
(i) A special financial report on Form 1-KC or Form 1-SC (Sec.
239.602) if the offering statement did not contain the following:
(A) Financial statements (which are required to be audited for Tier
2) for the issuer's most recent fiscal year (or for the life of the
issuer if less than a full fiscal year) preceding the fiscal year in
which the issuer's offering statement became qualified; or
(B) unaudited financial statements covering the first six months of
the issuer's current fiscal year if the offering statement was
qualified during the last six months of that fiscal year.
(ii) The special financial report described in paragraph
(a)(2)(i)(A) of this section must be filed under cover of Form 1-KC
within 120 calendar days after the qualification date of the offering
statement and must include audited financial statements for such fiscal
year or other period specified in that paragraph, as the case may be.
The special financial report described in paragraph (a)(2)(i)(B) of
this section must be filed under cover of Form 1-SC within 90 calendar
days after the qualification date of the offering statement and must
include the semiannual financial statements for the first six months of
the issuer's fiscal year, which may be unaudited.
(iii) A special financial report must be signed in accordance with
the requirements of the form on which it is filed.
(3) Semiannual report. A semiannual report on Form 1-SC (Sec.
239.602) within the period specified in Form 1-SC. Semiannual reports
must cover the first six months of each fiscal year of the issuer,
commencing with the first six months of the fiscal year immediately
following the most recent fiscal year for which financial statements
were included in the offering statement, or, if the offering statement
included financial statements for the first six months of the fiscal
year following the most recent full fiscal year, for the first six
months of the following fiscal year.
(4) Current reports. Current reports on Form 1-UC (Sec. 239.603)
with respect to the matters and within the period specified in that
form, unless substantially the same information has been previously
reported to the Commission by the issuer under cover of Form 1-KC or
Form 1-SC.
(5) Reporting by successor issuers. Where in connection with a
succession by merger, consolidation, exchange of securities,
acquisition of assets, or otherwise, securities of any issuer that is
not required to file reports pursuant to paragraph (a) of this section
are issued to the holders of any class of securities of another issuer
that is required to file such reports, the duty to file reports
pursuant to paragraph (a) of this section is deemed to have been
assumed by the issuer of the class of securities so issued. The
successor issuer must, after the consummation of the succession, file
reports in accordance with paragraph (a) of this section, unless that
issuer is exempt from filing such reports or the duty to file such
reports is terminated or suspended under paragraph (c) or (d) of this
section.
(6) Exchange Act reporting requirements. The duty to file reports
under this rule shall be deemed to have been met if the issuer is
subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act (15 U.S.C. 78m or 15 U.S.C. 78o) and, as of each Form 1-KC
and Form 1-SC due date, has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act (15 U.S.C. 78m or 15 U.S.C.
78o) during the 12 months (or such shorter period that the registrant
was required to file such reports) preceding such due date.
(7) Exemption for subsidiary issuers of guaranteed securities and
subsidiary guarantors. Any issuer of a guaranteed security, or
guarantor of a security, that is permitted to omit financial statements
by Item (b)(6)(i) of Part F/S of Form 1-CRYPTO (referenced in Sec.
239.600), Item 12(d)(1) of Part II of Form 1-KC (referenced in Sec.
239.601), and Item 5(e)(1) of Form 1-SC (referenced in Sec. 239.602),
is exempt from the requirements of this paragraph (a).
(b) Amendments. All amendments to the reports described in
paragraph (a) of this section must be filed under cover of the form
amended, marked with the letter A to designate the document as an
amendment, e.g., ``1-KC/A,'' and in compliance with pertinent
requirements applicable to such reports. Amendments filed pursuant to
this paragraph (b) must set forth the complete text of each item as
amended but need not include any items that were not amended.
Amendments must be numbered sequentially and be filed separately for
each report amended. Amendments must be signed on behalf of the issuer
by a duly authorized representative of the issuer. An amendment to any
report required to include certifications as specified in the
applicable form must include new certifications by the appropriate
persons.
(c) Suspension of duty to file reports.
(1) The duty to file reports under paragraph (a) of this section
with respect to a class of securities ``held of record'' (which shall
be as defined in Sec. 240.12g5-1 for purposes of determining whether
securities are ``held of record'' under this section) by less than 300
persons shall be suspended for such class of securities immediately
upon filing with the Commission a transition report on Form TR (Sec.
239.604) if the issuer of such class has filed all reports required to
be filed under this rule before the date of such Form TR filing for the
shorter of:
(i) The period since the issuer became subject to such reporting
obligation; or
(ii) Its most recent three fiscal years and the portion of the
current year preceding the date of filing Form TR.
(2) For the purposes of paragraph (c)(1) of this section, the term
class is construed to include all securities of an issuer that are of
substantially similar character and the holders of which enjoy
substantially similar rights and privileges. If the Form TR is
subsequently withdrawn or if it is denied because the issuer was
ineligible to use the form, the issuer must, within 60 calendar days,
file with the
[[Page 54614]]
Commission all reports which would have been required if such
transition report had not been filed. If the suspension resulted from
the issuer's merger into, or consolidation with, another issuer or
issuers, the notice must be filed by the successor issuer.
(3) The ability to suspend reporting, as described in paragraph
(c)(1) of this section, is not available for any class of securities
if:
(i) During that fiscal year an offering statement was qualified;
(ii) The issuer has not filed an annual report under this rule or
the Exchange Act for the fiscal year in which an offering statement was
qualified; or
(iii) Offers or sales of securities of that class are being made
pursuant to an offering under this subpart.
(d) Termination of duty to file reports. (1) If the duty to file
reports is deemed to have been met under paragraph (a)(6) of this
section and such status ends because the issuer terminates or suspends
its duty to file reports under the Exchange Act, the issuer's
obligation to file reports under paragraph (a) of this section will:
(i) Automatically terminate if the issuer is eligible to suspend
its duty to file reports under paragraphs (c)(1) and (3) of this
section; or
(ii) Recommence with the report covering the most recent financial
period after that included in any effective registration statement or
filed Exchange Act report.
(2) If an issuer satisfies the conditions of the safe harbor in
Sec. 228.400 or the covered investment contract otherwise ceases to
exist during the period in which the issuer is required to file reports
under paragraph (a) of this section, the issuer's obligation to file
reports under paragraph (a) of this section will terminate immediately
upon filing with the Commission a transition report on Form TR.
Sec. 228.306 Suspension of the exemption.
(a) Suspension. The Commission may at any time enter an order
temporarily suspending an exemption under this subpart if it has reason
to believe that:
(1) No exemption is available or any of the terms, conditions, or
requirements of Regulation Crypto Assets have not been complied with;
(2) The offering statement, any sales or solicitation of interest
material, or any report filed under Sec. 228.305 contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
(3) The offering is being made or would be made in violation of
section 17 of the Securities Act;
(4) An event has occurred after the filing of the offering
statement that would have rendered the exemption hereunder unavailable
if it had occurred before such filing;
(5) Any person specified in Sec. 230.262(a) of this chapter has
been indicted for any crime or offense of the character specified in
Sec. 230.262(a)(1) of this chapter, or any proceeding has been
initiated for the purpose of enjoining any such person from engaging in
or continuing any conduct or practice of the character specified in
Sec. 230.262(a)(2) of this chapter, or any proceeding has been
initiated for the purposes of Sec. 230.262(a)(3) through (8) of this
chapter; or
(6) The issuer or any promoter, officer, director, or underwriter
has failed to cooperate, or has obstructed or refused to permit the
making of an investigation by the Commission in connection with any
offering made or proposed to be made in reliance on Regulation Crypto
Assets.
(b) Notice and hearing. Upon the entry of an order under paragraph
(a) of this section, the Commission will promptly give notice to the
issuer, any underwriter, and any selling securityholder:
(1) That such order has been entered, together with a brief
statement of the reasons for the entry of the order; and
(2) That the Commission, upon receipt of a written request within
30 calendar days after the entry of the order, will, within 20 calendar
days after receiving the request, order a hearing at a place to be
designated by the Commission.
(c) Suspension order. If no hearing is requested and none is
ordered by the Commission, an order entered under paragraph (a) of this
section shall become permanent on the 30th calendar day after its entry
and shall remain in effect unless or until it is modified or vacated by
the Commission. Where a hearing is requested or is ordered by the
Commission, the Commission will, after notice of and opportunity for
such hearing, either vacate the order or enter an order permanently
suspending the exemption.
(d) Permanent suspension. The Commission may, at any time after
notice of and opportunity for hearing, enter an order permanently
suspending the exemption for any reason upon which it could have
entered a temporary suspension order under paragraph (a) of this
section. Any such order shall remain in effect until vacated by the
Commission.
(e) Notice procedures. All notices required by this rule must be
given by personal service, registered or certified mail to the
addresses given by the issuer, any underwriter and any selling
securityholder in the offering statement.
Sec. 228.307 Withdrawal or abandonment of offering statements.
(a) Withdrawal. If none of the securities that are the subject of
an offering statement has been sold and such offering statement is not
the subject of a proceeding under Sec. 228.306, the offering statement
may be withdrawn with the Commission's consent. The application for
withdrawal must state the reason the offering statement is to be
withdrawn and must be signed by an authorized representative of the
issuer. Any withdrawn document will remain in the Commission's files,
as well as the related request for withdrawal.
(b) Abandonment. When an offering statement, or a post-
qualification amendment to such statement, has been on file with the
Commission for nine months without amendment and has not become
qualified, the Commission may, in its discretion, declare the offering
statement or post-qualification amendment abandoned. If the offering
statement has been amended, or if the post-qualification amendment has
been amended, the nine-month period shall be computed from the date of
the latest amendment.
Subpart D--Investment Contract Safe Harbor
Sec. 228.400 Investment Contract Safe Harbor.
A covered investment contract will be deemed to have ceased to
exist, and the crypto asset that was subject to the covered investment
contract will be deemed not to constitute or represent or to be subject
to that investment contract for purposes of section 2(a)(1) of the
Securities Act (15 U.S.C. 77b(a)(1)) and section 3(a)(10) of the
Exchange Act (15 U.S.C. 78c(a)(10)), if the following conditions are
satisfied:
(a) The issuer of the covered investment contract has completed or
otherwise permanently ceased all essential managerial efforts that it
represented or promised it would engage in under the covered investment
contract and is not making and does not intend to make any new
representations or promises to engage in essential managerial efforts
with respect to the crypto asset; and
(b) The issuer of the covered investment contract files a
transition report containing the information
[[Page 54615]]
required by Form TR (Sec. 239.604 of this chapter) with the
Commission.
Subpart E--Definition of ``Qualified Purchaser.''
Sec. 228.500 Definition of ``qualified purchaser.''
For purposes of section 18(b)(3) of the Securities Act (15 U.S.C.
77r(b)(3)), a ``qualified purchaser'' means any person to whom
securities are offered or sold pursuant to:
(a) An offering under Regulation Crypto Assets (Sec. Sec. 228.100
through 228.500); or
(b) An offering pursuant to a transaction by any person other than
an issuer, underwriter, or dealer with respect to a covered investment
contract (as defined in Sec. 228.100); provided that:
(1) The issuer has satisfied the requirements of an exemption under
Regulation Crypto Assets with respect to such covered investment
contract; and
(2) The issuer remains subject to, and is current with respect to,
such exemption's disclosure and filing requirements and/or periodic
reporting obligations, as applicable.
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
0
6. The authority citation for part 230 continues to read as follows:
Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126
Stat. 313 (2012), unless otherwise noted.
Section 230.151 is also issued under 15 U.S.C. 77s(a).
Section 230.160 is also issued under section 104(d) of the
Electronic Signatures Act.
Section 230.193 is also issued under sec. 943, Public Law 111-
203, 124 Stat. 1376.
Sections 230.400 to 230.499 issued under secs. 6, 8, 10, 19, 48
Stat. 78, 79, 81, and 85, as amended (15 U.S.C. 77f, 77h, 77j, 77s).
Sec. 230.457 also issued under secs. 6 and 7, 15 U.S.C. 77f and
77g.
Section 230.502 is also issued under 15 U.S.C. 80a-8, 80a-29,
80a-30.
* * * * *
0
7. Amend Sec. 230.152 by adding paragraphs (c)(6) and (d)(5) to read
as follows:
Sec. 230.152 Integration.
* * * * *
(c) * * *
(6) Regulation Crypto Assets, in the case of:
(i) An offering in reliance on Sec. 228.200, on the date the
issuer first made an offer of its securities in reliance on Sec.
228.200; or
(ii) An offering in reliance on subpart C of Regulation Crypto
Assets, on the earlier of the date the issuer first made an offer
soliciting interest in a contemplated securities offering in reliance
on subpart C of Regulation Crypto Assets, or the public filing of a
Form 1-CRYPTO offering statement.
(d) * * *
(5) Regulation Crypto Assets, in the case of:
(i) An offering in reliance on Sec. 228.200, on the later of the
date:
(A) The issuer entered into a binding commitment to sell all
securities to be sold under the offering (subject only to conditions
outside of the investor's control); or
(B) The issuer and its agents ceased efforts to make further offers
to sell the issuer's securities under such offering;
(ii) An offering in reliance on subpart C of Regulation Crypto
Assets, on:
(A) The withdrawal of an offering statement under Sec. 228.307(a);
(B) The filing of a transition report on Form TR (Sec. 239.604);
(C) The declaration by the Commission that the offering statement
has been abandoned under Sec. 228.307(a); or
(D) The date, after the third anniversary of the date the offering
statement was initially qualified, on which Sec. 228.300(c)(3)(i)(F)
prohibits the issuer from continuing to sell securities using the
offering statement, or any earlier date on which the offering
terminates by its terms;
* * * * *
0
8. Amend Sec. 230.175 by revising paragraph (b)(1)(i) to read as
follows:
Sec. 230.175 Liability for certain statements by issuers.
* * * * *
(b) * * *
(1) * * *
(i) At the time such statements are made or reaffirmed, either the
issuer is subject to the reporting requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 and has complied with the
requirements of Rule 13a-1 or 15d-1 (Sec. Sec. 239.13a-1 or 239.15d-1
of this chapter) thereunder, if applicable, to file its most recent
annual report on Form 10-K, Form 20-F, or Form 40-F; or if the issuer
is not subject to the reporting requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934, the statements are made in a
registration statement filed under the Act, offering statement or
solicitation of interest, written document or broadcast script under
Regulation A or subpart C of Regulation Crypto Assets or pursuant to
sections 12(b) or (g) of the Securities Exchange Act of 1934; and
* * * * *
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
0
9. The authority citation for part 232 continues to read as follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3,
77sss(a), 78c(b), 78l, 78m, 78n, 78n-1, 78o(d), 78w(a), 78ll, 80a-
6(c), 80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq.; and 18 U.S.C.
1350, unless otherwise noted.
Section 232.302 is also issued under secs. 3(a) and 302, Public
Law No. 107-204, 116 Stat. 745.
0
10. Amend Sec. 232.101 by:
0
a. Revising paragraphs (a)(1)(xxxvii) and (xxxviii); and
0
b. Adding a new paragraph (xxxix).
The revision reads as follows:
(a) * * *
(1) * * *
(xxxvii) Form 1-N (Sec. 249.10 of this chapter);
(xxxviii) Form 15A (Sec. 249.801 of this chapter); and
(xxxix) Filings made pursuant to Regulation Crypto Assets
(Sec. Sec. 228.100 through 228.500 of this chapter).
* * * * *
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
Subpart B--Forms Pertaining to Exemptions
0
11. The authority citation for part 239 continues to read, in part, as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3,
77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78ll,
78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26,
80a-29, 80a-30, and 80a-37, unless otherwise noted.
0
12. Add Sec. 239.600 to read as follows:
Sec. 239.600 Form 1-CRYPTO, offering statement under Regulation
Crypto Assets.
This form shall be used for filing under Regulation Crypto Assets
(17 CFR part 228).
Note: Form 1-CRYPTO is attached as Appendix A to this document.
Form 1-CRYPTO will not appear in the Code of Federal Regulations.
* * * * *
0
13. Add Sec. 239.601 to read as follows:
Sec. 239.601 Form 1-KC.
This form shall be used for filing annual reports under Regulation
Crypto Assets (17 CFR part 228).
Note: Form 1-KC is attached as Appendix B to this document. Form
1-KC will not appear in the Code of Federal Regulations.
[[Page 54616]]
0
14. Add Sec. 239.602 to read as follows:
Sec. 239.602 Form 1-SC.
This form shall be used for filing semiannual reports under
Regulation Crypto Assets (17 CFR part 228).
Note: Form 1-SC is attached as Appendix C to this document. Form
1-SC will not appear in the Code of Federal Regulations.
0
15. Add Sec. 239.603 to read as follows:
Sec. 239.603 Form 1-UC.
This form shall be used for filing current reports under Regulation
Crypto Assets (17 CFR part 228).
Note: Form 1-UC is attached as Appendix D to this document. Form
1-UC will not appear in the Code of Federal Regulations.
0
16. Add Sec. 239.604 to read as follows:
Sec. 239.604 Form TR.
This form shall be used to file a transition report under
Regulation Crypto Assets (17 CFR part 228).
Note: Form TR is attached as Appendix E to this document. Form
TR will not appear in the Code of Federal Regulations.
0
17. Add Sec. 239.605 to read as follows:
Sec. 239.605 Form NOR.
This form shall be used to file a notice of reliance under
Regulation Crypto Assets (17 CFR part 228).
Note: Form NOR is attached as Appendix F to this document. Form
NOR will not appear in the Code of Federal Regulations.
By the Commission.
Dated: August 18, 2026.
Vanessa A. Countryman,
Secretary.
Note: The following appendices will not appear in the Code of
Federal Regulations.
BILLING CODE 8011-01-P
[[Page 54617]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.000
[[Page 54618]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.001
[[Page 54619]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.002
[[Page 54620]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.003
[[Page 54621]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.004
[[Page 54622]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.005
[[Page 54623]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.006
[[Page 54624]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.007
[[Page 54625]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.008
[[Page 54626]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.009
[[Page 54627]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.010
[[Page 54628]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.011
[[Page 54629]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.012
[[Page 54630]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.013
[[Page 54631]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.014
[[Page 54632]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.015
[[Page 54633]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.016
[[Page 54634]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.017
[[Page 54635]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.018
[[Page 54636]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.019
[[Page 54637]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.020
[[Page 54638]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.021
[[Page 54639]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.022
[[Page 54640]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.023
[[Page 54641]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.024
[[Page 54642]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.025
[[Page 54643]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.026
[[Page 54644]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.027
[[Page 54645]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.028
[[Page 54646]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.029
[[Page 54647]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.030
[[Page 54648]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.031
[[Page 54649]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.032
[[Page 54650]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.033
[[Page 54651]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.034
[[Page 54652]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.035
[[Page 54653]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.036
[[Page 54654]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.037
[[Page 54655]]
[GRAPHIC] [TIFF OMITTED] TP21AU26.038
[FR Doc. 2026-17183 Filed 8-20-26 8:45 am]
BILLING CODE 8011-01-C