SEC Proposes Regulation Crypto Assets Framework for Investment Contracts

The US Securities and Exchange Commission (SEC) has proposed a new framework for regulating crypto assets through Regulation Crypto Assets. The regulation aims to establish a clear path for innovators and developers to raise capital through investment contracts involving crypto assets, while maintaining investor protections.

Regulation Crypto Assets proposes two exemptions from the registration requirements of Section 5 under the Securities Act: the startup exemption and the fundraising exemption. The startup exemption would allow issuers to offer covered investment contracts during a period of up to four years with an aggregate offering limit of $5 million. This exemption is only available for one-time use, restricting issuers and their affiliates from relying on it again for the same or similar crypto asset.

The fundraising exemption has two tiers: Tier 1 permits offerings of up to $20 million in any 12-month period, while Tier 2 allows offerings of up to $75 million. Issuers would be required to file an offering statement containing required disclosures with the SEC and sales could not occur until qualification. General solicitation would be permissible under this exemption.

The proposed regulation also includes a safe harbor for covered investment contracts, which would provide greater certainty regarding when such contracts have ceased to exist. This safe harbor is nonexclusive and intended to provide clarity for issuers.