#SECURITIES MOSAIC FOR FREE#

After Kik raised almost $100 million from investors, the SEC subsequently charged Kik with violating Section 5 of the Securities Act of 1933, alleging that the Kin tokens should have been registered as securities and accompanied by the proper investor disclosures. Kik claimed that the funds from the offering would help create a 'Kin Ecosystem' revolving around - and driving up the value of - its new token. which, in 2017, sold one trillion of its digital tokens called 'Kin' ( SEC v. These cases provide a glimpse of what's likely to come.įor example, in June 2019, the SEC filed a complaint in the Southern District of New York against Kik Interactive Inc. The SEC has already waged several successful legal battles against crypto creators and platforms on this front. 4, 2021).Įarlier this year, Gensler also indicated in a virtual press conference that the SEC will be focusing on crypto exchanges in 2022 ('Crypto Exchanges Will Face More Scrutiny From SEC, Gensler Says' Bloomberg, Jan. The Howey Test requires that there must be (1) the investment of money (2) in a common enterprise (3) with a reasonable expectation of profits to be derived from the efforts of others.Įchoing his predecessor's sentiments, current SEC Chair Gary Gensler reiterated to CNBC in August 2021 that the SEC considers many cryptocurrency coins and tokens to be securities under the Howey Test, saying, 'If somebody is raising money selling a token and the buyer is anticipating profits based on the efforts of that group to sponsor the seller, that fits into something that's a security' ('SEC chair Gary Gensler on his vision for cryptocurrency regulation' Aug.

When determining whether a digital asset is a security, the SEC considers whether the asset constitutes an 'investment contract.' For an asset to be considered an investment contract, it must meet the three criteria of the Howey Test which was developed and named after the Supreme Court case SEC v. This includes cryptocurrencies such as Bitcoin, Ether, and Litecoin.īut since terms like 'coin,' 'token,' 'currency,' and 'asset' are regularly used interchangeably to describe the thousands of products in the crypto world, it's difficult to accurately categorize them based on nomenclature alone. In 2018, Clayton clarified in an interview with CNBC that true cryptocurrencies (i.e., those that simply act as replacements for traditional fiat currency) are commodities rather than securities ('SEC chairman: Cryptocurrencies like bitcoin are not securities' June 6, 2018). Since the first cryptocurrency (Bitcoin) launched in 2009, the question of how exactly to fit the components of this new, decentralized financial ecosystem into traditional categories has been widely debated.īack in 2017, at the PLI 49th Annual Institute on Securities Regulation, then-SEC Chair Jay Clayton warned cryptocurrency exchanges that many of their products likely qualified as securities and should therefore be registered under federal securities laws. Securities - as opposed to other assets such as commodities - are strictly regulated and require detailed disclosures to inform investors of potential risks. The SEC is leading the charge for more regulatory oversight of cryptocurrency products and platforms that may be engaging in the sale and offering of securities. However, for these same reasons, crypto has also shown itself to be extremely volatile, susceptible to fraud, and lacking sufficient investor protections.

This lack of oversight has allowed cryptocurrency to operate on an almost instantaneous basis among a large cohort of users. Part of cryptocurrency's appeal is that it has, until now, been largely independent of intermediary entities (such as banks and stock exchanges) and has eluded regulation by institutions such as the Securities and Exchange Commission (SEC) and the U.S.

#SECURITIES MOSAIC FOR FREE#

Securities mosaic