Explained: Crypto assets deemed as securities by the SEC

The US Securities and Exchange Commission (SEC) has designated dozens of crypto assets as securities. The five commissioners jointly published these determinations publicly, on their governmental website.

The SEC employs over 4,500 workers who oversee $115 trillion worth of annual US securities transactions. As a regulator and civil enforcement agency, the commission usually reveals its determinations of unregistered securities offerings within court filings. Of course, for non-contentious designations — such as accepting a securities registration statement from a willing and compliant registrant of securities tokens — the SEC will simply post customary notices within EDGAR or elsewhere on SEC.gov.

Due to legal obligations with the court system, plus hundreds of rules and regulations that govern its actions, the SEC is limited in when and to what extent it can reveal its determinations. For example, commissioners will always decline to comment on determinations that are subject to ongoing investigations or legal proceedings.

In almost every case that relates to a crypto asset whose issuers intended as a “utility token,” the SEC reveals its determinations when it publicly files a civil lawsuit. This timing is understandable, allowing employees at the SEC to complete their investigation and deliberations in private.

When re-classifying utility token offerings as securities offerings, commissioners typically base their determination on whether the offering passed the Supreme Court’s Howey Test. This tests whether something is offered as an “investment contract.”

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In its court filings, the SEC is careful to explain how each token passed each of the four prongs of the Howey Test. If an offering passes Howey and, therefore, was an investment contract, purchasers must (1) invest money into (2) a common enterprise with (3) reasonable expectation of profits (4) derived from the efforts of others.

Note: Certain instruments are always securities themselves; other instruments become securities through an offering. For example, equity in a company is always a security, no matter how that equity is offered. On the other hand, even a commodity — like a parcel of an orange grove — can become a security if it passes the Howey Test as an investment contract.

Below is a list of crypto assets which had been offered as unregistered securities, according to the SEC.

Unregistered crypto asset security offerings per the SEC

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