US Securities and Exchange Commission (SEC) commissioner Hester Peirce has rocked the crypto and blockchain world today with a speech at Chicago’s International Blockchain Congress suggesting that crypto businesses should have a three-year harbour period from their initial token sales before the SEC determine whether they need to comply with the agency’s securities laws.
“Today, SEC Commissioner Hester Peirce announced a proposed safe harbor for certain tokens under the federal securities laws. The Chamber of Digital Commerce encourages efforts to create a path for innovators to create and circulate digital tokens as they develop their networks toward a decentralized or functional technology platform.”
“The proposal exempts transactions involving digital tokens from the Securities Act of 1933 if the token is intended to be decentralized or functional within 3 years, and also contains additional disclosure requirements for the digital token developers. The safe harbor would allow token developers to begin their projects with clear parameters and disclosure requirements as they ideate, define, and begin to develop their solutions.”
“We look forward to working with Commissioner Peirce and her team to develop this proposed Rule, which has the potential to provide a clear path forward for those creating new innovations and solutions leveraging digital tokens.”
“The analysis of whether a token is offered or sold as a security is not static and does not strictly inhere to the digital asset,” stated Peirce, who has floated the idea of a safe harbour in the past and Thursday’s proposal appears to be the first formal attempt to make it a reality.”
“The safe harbour is also designed to protect token purchasers by requiring disclosures tailored to the needs of the purchasers and preserving the application of the anti-fraud provisions of the federal securities laws,” according to Peirce’s notes.
Coindesk had access to the proposal:
“Specifically, the proposal defines an “initial development team,” which will manage the network’s development over its first three years, and “network maturity,” referring to a network that is “not controlled and is not reasonably likely to be controlled” by a single entity or individual but is operational.”
“The development team should disclose “the names and relevant experience, qualifications, attributes or skills” of each member, as well as how many tokens each member holds and how many they may earn through founders’ rewards or similar programs.”
“The definition of Network Maturity is intended to provide clarity as to when a token transaction should no longer be considered a security transaction but, as always, the analysis will require an evaluation of the particular facts and circumstances,” the proposal states.”
Peirce said the safe harbour proposal is tied to development teams acting in good faith and would not be available to any teams with members who had run-ins with the SEC in the past and it was not likely to apply to operational projects, adding her goal is to focus on new projects in their initial stages of development so as to ensure they can move beyond their first steps in building a network or community.
“This bad actor provision is not directed at teams that set forth a plan for a network and work earnestly toward building it, but fail to bring it to fruition. Rather, it is designed to ensure that the SEC can bring suit against a team that sets out to defraud token purchasers by materially misrepresenting or omitting key information,” Peirce said. “We all know that there are plenty of those kinds of ‘projects’ polluting the crypto space.”
According to Murphy & McGonigle’s 2019 Blockchain Litigation Year in Review Report:
- the Southern District of New York (SDNY) has more blockchain litigation than anywhere else
- the SEC remains Active with high profile enforcement activity
- regulatory enforcement actions have declined
- American courts have issued rulings which will affect the blockchain industry
- the SEC’s Path to Compliance is a ‘road less travelled.
- After the SDNY with 54 cases in 2019, the SEC is the second most litigious source with less than half the number of cases (22). It is followed by SD Florida and ND Cal (both 19) and EDNY (15).
- While the States took a step back, the SEC filed 43% more blockchain enforcement actions in 2019 (compared to 2018). These included three high-profile enforcement actions
Created in 2018 by Murphy & McGonigle’s Innovation Lab, the Blockchain Litigation database is a proprietary, data-based tool that monitors US litigation in the blockchain industry. The Blockchain Litigation database is the basis for analyses and interpretations appearing in the Blockchain Litigation Year in Review Report.
- Scottish Blockchain Company Hypervine Signs with European Space Agency Data To Improve Efficiency And Transparency For The World’s Mining Industry - February 22, 2020
- Loyyal Signs Three Year Production Agreement with The Emirates Group for Use of Blockchain Loyalty and Rewards Platform - February 21, 2020
- Enjin Platform Enables Game Developers to Integrate Blockchain Assets Without Blockchain Coding Experience - February 18, 2020
- Blockchain Project Cashaa Protecting Crypto Companies to Survive Fifth Money Laundering Directive and New FCA Rules in 2020 - February 8, 2020
- US SEC Boss Hester Peirce Suggests Three Year “Safe Harbour Period” For Token Sales - February 6, 2020
- China’s Hyperchain Plans to Take on Coronavirus With Blockchain-Fueled Donation Platform - February 6, 2020
- Blockstack Proposes Using Bitcoin, Novel ‘Proof of Transfer’ To Accelerate A Truly User-Owned Web 3.0 - February 6, 2020
- Hack Blockchain To The MAX! €15.000 Prizepool at MAXathon in Berlin April 18-19, 2020 - February 6, 2020
- Chiliz And Enjin To Launch Blockchain Collectibles Using NFTs For The Likes of Juventus, Paris Saint-Germain, Atlético de Madrid and West Ham - February 6, 2020
- MIT Researchers Claim to Boost Bitcoin and Cryptocurrency Blockchain Transactions By 4x with New ‘Spider’ Routing Scheme - February 4, 2020
- Canada’s Blockchain Intelligence Group Signs USD$540,000 Contract with United States Feds - February 4, 2020
- The United States Marshals Services to Auction 4,040.54069820 Bitcoin – USD$37 Million - February 4, 2020
- OpenLegacy Project Gets $20m Strategic Investment from Japan’s SBI Holdings – Focus on Blockchain - February 4, 2020
- Fastest Growing and Highest Revenue Mobile Messenger App in the World, Japan’s LINE to Launch LINK Cryptocurrency - February 3, 2020
- Insolar to Launch MainNet on February 3, 2020 – Debuts Insolar’s New XNS Token - February 3, 2020
- Blockchain-Based Social Media App Vid with VI Tokens – To Launch April 1, 2020 – After VC $10 million USD Investment in 2019 - February 3, 2020
- UK FCA Licenses BCB Group as First Crypto Company to be Regulated as Authorised Payment Institution - January 31, 2020
- Virgil Griffith Pleads Innocent in Blockchain North Korea Event Case – Faces Up To 20 Years in Prison if Convicted - January 31, 2020
- University College London Centre for Blockchain Technologies Releases New Report on Supply Chains - January 31, 2020
- World’s Leading Research and Advisory Company Gartner Says Blockchain Smart Contracts Can Increase Corporate Overall Data Quality by 50 Percent - January 31, 2020
Also published on Medium.