SEC's Proposed Crypto Rules: A New Path Forward or More Minefields?

The SEC has proposed new Regulation Crypto Assets rules that could make public token sales easier in the United States. The proposal would allow qualifying issuers to raise up to $75 million during any 12-month period, and potentially allow projects to return to investors to raise more funds year after year as they build out their networks.

According to Lee Reiners, a Duke University lecturing fellow and financial regulation expert, the $75 million exemption could make public token offerings more feasible, but it is unlikely to produce a return to the ICO boom. He notes that fundraising markets are shaped by investor appetite, token economics, liquidity, custody, and the reputational damage left by the last ICO cycle.

The proposal creates two exemptions for certain investment contracts involving crypto assets: a one-time exemption for startups for offerings of up to $5 million over four years, and a larger fundraising exemption allowing up to $75 million in each 12-month period. The latter is modeled in part on Regulation A and comes with disclosure and ongoing reporting requirements.

Drew Hinkes, partner at Winston & Strawn, notes that the 12-month limitation would allow for 'serial raises' of $75 million every 12 months, provided they are actually distinct offerings. However, Lilya Tessler, partner and leader of Sidley's Global FinTech and Blockchain group, cautions that subsequent raises would require filing a new offering statement and undergoing an SEC staff review.