The U.S. Securities and Exchanges Commission [SEC] was the highlight of the cryptocurrency space after they released a framework on how to analyze which tokens can be classified as securities. Several members in the community consider this guidance to be one of the few steps taken by the commission to regulate the space.
However, Jake Chervinsky, lawyer at Kobre & Kim LLP, explained that this framework was not a big deal as it did not “answer any big questions” pertaining to the regulation of cryptocurrency space. He tweeted,
“0/ The SEC’s DLT Framework, through the eyes of a securities litigator. Okay, so it doesn’t answer any big questions about crypto regulation, but if you thought it would, you kind of deserve to be disappointed. I, for one, choose to be (mostly) happy with this thing.”
This was followed by the lawyer asserting that the Commission does not “make law,” pointing that the framework “isn’t binding to anyone,” including the SEC. He added that the “enforcement strategy” put forth by the commission’s lawyer can be challenged in court, stating that “they can be wrong.” He went on to state,
“So, what did the SEC give us today? The Framework is the SEC’s long-awaited “plain English” guidance for ICOs, a solid 13 pages (including many legal citations) explaining how the SEC thinks each prong of the Howey test applies to digital assets.”
Further, Chervinsky stated that this framework was a way for the regulatory authority to “connect” with the cryptocurrency space, adding that this was a positive move. He added,
” The SEC is saying: “we want you to succeed, we just want you to work with us along the way.” The rest of the Framework […] in the SEC’s view, define whether a digital token qualifies as a security. Before now, the SEC’s go-to resource for this purpose was the 2017 DAO Report, which–all due respect–is useless garbage in 2019.”
The lawyer also said that the SEC’s report on Decentralized Autonomous Organization [DAO] “bothered” him. He added that even though the report “barely glanced” at the Howey Test, the commission referred to it as a “detailed legal analysis,” with regard to securities laws and ICOs. He went on to state, “the Report is dead; long live the Framework.”
This was followed by the lawyer stating that he agreed with some of the critiques made by his colleagues, adding that some points mentioned in the framework were either “painfully obvious” or “painfully vague.” According to him, there were some points that seemed “nearly impossible to satisfy,” adding that they were wrong and would not hold up in court. For this, he cited the example of airdrops mentioned in the framework, which stated that airdrops could also be considered as a distribution or sale of securities.
Jake further stated,
“It defies logic to say you can have “an investment of money” under Securities Act § 2a(1) without anyone investing anything of monetary value. No surprise, the SEC doesn’t cite any case law to support this point. I think they could have done a much better job on airdrops.”
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