SEC and Senate Proposals Offer Different Paths for Crypto Asset Issuers

The Securities and Exchange Commission (SEC) has proposed Regulation Crypto Assets, which would exempt certain crypto-asset offerings from federal registration requirements. The proposal includes two routes for issuers: a limited 'startup' exemption allowing up to $5 million over four years, and a separate offering-and-reporting exemption permitting up to $75 million in a 12-month period.

However, the Senate's proposed CLARITY Act takes a different approach. Section 103 of the bill would create a statutory exemption for certain transactions involving ancillary assets sold pursuant to an investment contract, with an annual limit that is the greater of $50 million or 10% of the issuer's outstanding ancillary asset value during a four-year period.

The SEC proposal and the Senate bill have different legal mechanisms, which affect the types of issuers and instruments that qualify, what buyers receive, and how the two paths could interact. Issuers would need to carefully assess their eligibility for each route, considering factors such as the type of asset, transaction, and issuer's affiliate or control relationships.

The practical choice between the SEC proposal and the Senate bill would depend on more than just the amount an issuer wants to raise. The two routes also differ in investor rights, with the SEC proposal requiring offering disclosures, audited financial statements for larger offerings, and annual, semiannual, and current reports, while the Senate bill preserves specified federal liability provisions and private rights of action.