The SEC Has Provided Guidance On Ether and Bitcoin, Sort Of


I’m attorney Laura Anthony founding partner
of Legal & Compliance, a full service corporate, securities, and business transactions law
firm. Today is the first in a LawCast series talking
about the latest guidance from the SEC on crypto currencies as a security. On June 14, 2018, William Hinman, the Director
of the SEC’s Division of Corporation Finance, referred to as Corp Fin, gave a speech at
Yahoo Finance’s All Markets Summit in which he made two huge revelations for the crypto
marketplace. The first is that he believes a cryptocurrency
issued in a securities offering could later be purchased and sold in transactions not
subject to the securities laws. The second is that Ether and Bitcoin are not
currently securities. Also, for the first time, Hinman gives the
marketplace guidance on how to structure a token or coin such that it might not be a
security in the first place. While this gives the marketplace much needed
guidance on the topic, a speech by an executive with the SEC has no legal force or effect. As a result, the blogs and press responding
to Mr. Hinman’s speech have been mixed. Personally, I think it is a significant advancement
in the regulatory uncertainty surrounding the crypto space and a signal that more constructive
guidance will soon follow. I will summarize the entire speech later in
this LawCast series, but first right to the most salient point. Although a speech by an SEC official does
not have legal weight, it does give practitioners a firm foot on which to proceed. William Hinman is the Director of the Division
of Corporation Finance, whose responsibility includes reviewing and commenting on SEC filings,
a topic I’ve covered before. When responding to SEC comments, a company
may “go up the ladder,” so to speak, in its discussion with the CorpFin review staff. Such further discussions are not discouraged
or even see or seen as an adversarial attack in any way. For instance, if the company does not understand
or agree with a comment, it may first talk to the reviewer. If that does not resolve the question, they
may then ask to talk to a particular person, or the person who prepared the comment or
directly with the legal branch chief or accounting branch chief identified in the comment letter. A company may even then proceed to speak directly
with the assistant director, deputy director, and even the director. Related to Bitcoin, Director Hinman stated,
“…when I look at Bitcoin today, I do not see a central third party whose efforts are
a key determining factor in the enterprise. The network on which Bitcoin functions is
operational and appears to have been decentralized for some time, perhaps from inception. Applying the disclosure regime of the federal
securities laws to the offer and resale of Bitcoin would seem to add little value.” Similarly, related to Ether, Mr. Hinman stated,
“…putting aside the fundraising that accompanied the creation of Ether, based on my understanding
of the present state of Ether, the Ethereum network and its decentralized structure, current
offers and sales of Ether are not securities transactions.” As a direct result of these statements, at
least two of my firm’s clients, with our support, have shifted how they will proceed
with Regulation A offerings in which tokens are being offered, and Bitcoin and Ether expected
to be accepted as a form of payment. I’m securities attorney Laura Anthony, founding
partner of Legal & Compliance, and producer of LawCast. Should you have any questions about today’s
topic, please visit SecuritiesLawBlog.com and LawCast.com, or contact me directly. Inquiries of a technical nature are always
encouraged.

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