SEC CRYPTO TASK FORCE ROUNDTABLE
Overview
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On March 21, the Securities and Exchange Commission (SEC) held a roundtable entitled “How We Got Here and How We Get Out – Defining Security Status” as a part of the Crypto Task Force’s “Spring Sprint Toward Crypto Clarity” series. The agenda and panelists’ biographies can be found here.
Panelists in the roundtable were:
- Collins Belton, Managing Partner, Brookwood P.C.
- Sarah Brennan, General Counsel, Delphi Ventures
- Chris Brummer, Professor of Financial Technology, Georgetown Law
- Lewis Cohen, Co-Chair, CahillNXT
- Coy Garrison, Partner, Steptoe
- Teresa Goody Guillen, Partner, BakerHostetler
- Miles Jennings, General Counsel, a16z crypto
- Lee Reiners, Lecturing Fellow, Duke Financial Economic Center and Duke Law
- Benjamin Schiffrin, Director of Securities Policy, Better Markets
- Rodrigo Seira, Special Counsel, Cooley LLP
- John Reed Stark, John Reed Stark Consulting LLC
Below is a summary of the hearing prepared by Delta Strategy Group, which includes several high-level takeaways.
Key Takeaways
- Commissioner Peirce opened the roundtable with four initial questions to frame and model the Task Force’s direction: 1) What makes something a security? 2) Is that status permanent, or might an asset start as a security and convert to a non-security, or vice versa? 3) How does decentralization affect the analysis? 4) Can we translate the characteristics of a security into a simple taxonomy that will cover the many different types of crypto assets that exist today and will exist in the future?
- Panelists highlighted how the market has already adjusted to SEC enforcement and shaping practices to align with present regulatory expectations, with some noting that the current regulatory approach is not suitable for managing decentralized crypto markets and Reiners calling for a new framework based on “Separation Theory” to reduce regulatory ambiguity.
- Panelists discussed the relevance of the Howey Test when applied to crypto assets, highlighting that it fails to capture the unique characteristics of digital asset, advocating for a broader approach, and emphasizing the importance of considering real-world applications. The discussion acknowledged the limitations of the Howey Test, and several panelists discussed its role in addressing information asymmetries through mandated disclosures.
- Panelists pointed out the inadequacy of the current SEC pathways for secondary crypto market trading, suggesting that Congress might allocate spot market oversight to the SEC, the CFTC, or both. Seira emphasized that investment intent behind a purchase does not automatically turn that transaction into a security.
- Brummer and Goody Guillen raised concerns about whether outdated regulatory frameworks adequately address the risks associated with crypto, with Goody Guillen emphasizing that the Howey Test was never intended to regulate entire industries and questioning whether courts are equipped to consistently apply securities definitions to digital assets.
- Jennings advocated for principles-based regulation to reduce subjective interpretation and increase clarity, warning that overly rigid applications of the Howey Test could create loopholes that make it difficult to distinguish between decentralized tokens like bitcoin and other assets.
- Belton talked about control as a central feature of and relevant to an exemptive framework and taxonomy questions. He said that there might not need to be disclosures for tokens with informational and operational utility, raising Regulation D and Peirce’s 195 Framework.
- Cohen raised that commercial interests could create investable assets with market utility without necessarily being classified as securities. He pointed out how the market is responding to the SEC’s actions, using Solana futures as an example of “policy lock-in” that may not reflect current market realities.
- Schiffrin stressed that the SEC’s mission includes capital formation, efficient markets, and investor protection, discussing how the CFTC lacks an investor protection mandate and regulatory gap, given the retail focus of many crypto projects