Key facts
- SEC staff guidance indicates that token buybacks on functional crypto networks do not qualify as promises of "essential managerial efforts" under the Howey test.
- For crypto networks not yet functional, buyback announcements pitched as generating yield or returns could still trigger securities laws.
- Attorney Gabriel Shapiro described the guidance as a "loophole" that allows projects to gain equity-like benefits without the associated burdens.
- The SEC staff guidance carries no legal force and could be reversed by a future SEC.
- The guidance builds on the SEC's March interpretive release and its Regulation Crypto Assets proposal.
The U.S. Securities and Exchange Commission's (SEC) Division of Corporation Finance has provided new guidance suggesting that token buyback announcements on functional cryptocurrency networks do not necessarily classify those tokens as securities. This is because, according to the staff, such announcements do not constitute promises of "essential managerial efforts," a key component of the Howey test used to determine if an asset is an investment contract and thus a security.
However, the guidance clarifies that for networks that are not yet functional, announcing a buyback program could still fall under securities laws if the issuer pitches it as a way to generate yield or returns for token holders. The staff also indicated that after a network becomes functional, promises to maintain, upgrade, or grow it, or vague aspirational statements not touting profit, would likely not satisfy the Howey test.