SEC Clarifies Crypto Activities Outside the Howey Test

The U.S. SEC staff has issued new guidance on federal securities laws for certain crypto assets, specifically addressing staking receipt tokens, token buybacks, marketing statements, network development, and secondary-market platforms.

The guidance clarifies when these activities may fall outside the Howey test, which determines whether an investment contract exists based on managerial efforts. The staff stated that functional networks can avoid investment contract treatment for certain ongoing development work, such as securing, maintaining, improving, or enhancing a system after it becomes functional.

The FAQs also addressed staking receipt tokens, saying they can qualify as digital tools under certain conditions when representing a digital commodity not subject to an investment contract. Additionally, token buybacks may be treated differently depending on the network's functionality; a buyback involving a functional network would not amount to essential managerial efforts.

The SEC staff stressed that these FAQs are not Commission rules and do not create new legal obligations. Each case depends on its specific facts and circumstances, and the analysis remains tied to network functionality, issuer promises, and expectations of profit from managerial efforts.