The SEC Proposes A Rule-Based Exit From Investment-Contract Treatment

The SEC's proposed Regulation Crypto Assets is easy to describe as a pair of new exemptions for token offerings. That description is accurate, but incomplete. The proposal's more durable innovation may be the machinery it would build around the end of an investment contract: an issuer could file a new Form TR to claim that promised managerial efforts are over and that the associated crypto asset is no longer subject to that contract for purposes of the Securities Act and Exchange Act.

That machinery would offer a path toward regulatory certainty, not a status certificate good against the world. The safe harbor would be conditional, the SEC could contest whether its conditions were met, and private parties could still argue that the asset is a security. Nor would the proposed rule presently resolve parallel questions under the Investment Company Act or Investment Advisers Act. Those boundaries make the proposal more interesting than its headline.