SEC Clarifies Crypto Investment Contract Rules in New FAQs

The Securities and Exchange Commission (SEC) has issued new FAQs clarifying how its March interpretation of federal securities laws applies to crypto assets. The guidance addresses various aspects, including functional networks, staking receipt tokens, and representations that could create an investment contract.

Issuers' representations and promises are assessed under the Howey test, which examines whether a non-security crypto asset was offered and sold as part of an investment contract involving promises of essential managerial efforts. The FAQs clarify that post-launch services generally do not meet this criterion, except in specific circumstances.

The SEC's Division of Corporation Finance staff also addressed promotional communications, stating that promoting a crypto system's existing utility and capabilities would likely not constitute a representation or promise to undertake essential managerial efforts. However, statements about potential utility, features, or capabilities can be considered promises if they promote profit potential.