Ethereum Is Not a Security, SEC Chairman Hints on Official Response to Congressman

Ethereum Is Not a Security, SEC Chairman Hints on Official Response to Congressman

Securities and Exchange Commission Chairman Jay Clayton confirmed an existing analysis stating that Ethereum and other tokens of similar characteristics did not fall within the securities category under SEC standards.

Comm. Jay Clayton

Mr. Clayton issued that statement in an official response to US House Rep. Ted Budd, who requested a formal pronouncement from the commission asking to clarify certain positions regarding cryptocurrencies. One clarification he asked for was to corroborate whether the opinions expressed by William Hinman, SEC Director of the Division of Corporate Finance, were representational or personalin nature.

As previously reported by Ethereum World News, Mr. Hinman was invited to the All Markets Summit organized by Yahoo Finance on Thursday, 14 June 2018 as a member of the SEC, and during that event explained that because of its characteristics, ETH (the native cryptocurrency of the Ethereum network) was not considered a security:

When we think about how ether today is operating, at least, we see a highly decentralized network, not the type ofcentralized actor that characterizes securities offerings. In its current state, we dont see value regulating it.

However, despite the positive effect this opinion had on the markets, the non-formal nature of this event raised doubts in the community. This motivated Mr. Ted Budd and a group of congressmen to ask the SEC for greater clarity regarding cryptocurrencies, ICOsand the like:

Ethereum and Other Projects Dont Pass The Howey Test

Mr. Claytons official communication on behalf of the SEC points out that while each cryptocurrency, token or ICO must be evaluated individually, the general criteria allow the civilsociety to have an approximate understanding of whethera token is a security by applying the Howey Test.

We also apply tests developed through case law, including the well-established investment contract* test articulated by the Supreme Court in SEC v. Howey and its progeny, including United Housing Found, Inc. v. Forman. As those cases explain, the touchstone of an investment contract is the presence ofan investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. The determination of whether a digital asset is an investment contract depends on the application of Howey and its progeny to the particular facts and circumstances of the digital asset transaction.

Broadly, according to the Howey Test, a transaction is an investment contract if:


It is an investment of money
There is an expectation of profits from the investment
The investment of money is in a common enterprise
Profit comes from the efforts of a promoter or third party

Good News For The Ecosystem

For further clarity, Mr. Clayton specifically referred to the words of William Hinman, Director of the SECs Division of Corporate Finance. In the letter, Comm. Clayton confirmed that Ether (and tokens of similar characteristics) were not considered Securities:

Your letter also asks whether I agree with certain statements concerning digital tokens in Director Hinmans June 2018 speech. I agree that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument. A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way thatit will no longer meet that definition. I agree with Director Hinmans explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.

Mr. Claytons statements are of special importance for traders of ETH and other similar tokens since they open the doors to American exchanges to operate freely without the uncertainty of being accused in the futureof illegal operations with undeclared securities.

The post Ethereum Is Not a Security, SEC Chairman Hints on Official Response to Congressman appeared first on Ethereum World News.

12.03.2019 / 16:40 18
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