The Securities Act of 1933 enacted by the US Congress states that any sale of securities must either be registered with the SEC or to meet certain qualifications for an exemption from such registration.
The SEC’s new framework on token sales outlines a number of factors that token issuers must consider before evaluating whether or not their offerings qualify as securities. These factors include an expectation of profit, whether a single or at least central group of entities are responsible for specific tasks within the network, and whether a group is creating or supporting a market for a digital asset.
The criteria for this reevaluation include whether:
The “distributed ledger network and digital asset are fully developed and operational” (meaning individuals can immediately use the token for some function);
The token is focused on a specific use case rather than speculation;
“Prospects for appreciation” in the token’s value are limited; and
If billed as a currency, the token actually operates as a store of value.
The guidance focuses on tokens and outlines how and when these cryptocurrencies may fall under a security classification, according to the document.
What is Reg A+?
As mentioned above, companies can meet certain rules to exempt from the registration. Regulation A+ can be understood as a mini-IPO designed for SMEs that cannot bear the costs of a normal SEC registration. Unlike Reg D which only allows accredited investors to participate, Reg A+ allows retail investors to join the offering.
Reg A+ has two different tiers.
Reg A+ Tier 1: companies can raise up to $20 million in a 12-month period.
Reg A+ Tier 2: companies can raise up to $50 million in a 12-month period and are subject to additional disclosure.