SEC's Crypto Czar Signals Some Flexibility on Token Offerings

Some blockchain token projects may be allowed to bypass U.S. securities registration requirements by obtaining so-called no-action letters from the Securities and Exchange Commission, an agency official said.

Generally, token issuers have three options if they want to conduct an initial coin offering, she said: they can register as a securities offering, apply for an exemption or "Make sure they're not a security."

In limited cases, the SEC could decide that "Maybe this doesn't fit the letter of our law or regulation but it fits the spirit and we can accomplish all the goals of investor protection," Szczepanik said.

"The letters set forth exactly what the person plans to do or the entity plans to do and if it's something that the SEC feels comfortable with we can release a no-action letter for exemptive relief saying 'we can recommend no enforcement action.'".

Her remarks signaling a modicum of flexibility are notable in light of SEC Chairman Jay Clayton's advice last month to anyone raising money by selling a token that they should "Start with the assumption that it is a security."

Speaking more broadly as to how a token may be classified as a security, Szczepanik explained that any determination would be based on how the sale is structured.

"It's a rare set of circumstances" where a token will not be classified as a security during a sale.

It is possible that after a project is built out, token purchasers may use the token without looking for a profit, which may shift its classification, she said, referencing SEC Director of Corporation Finance William Hinman's speech from earlier this year.

On the flip side, "If it's a fully developed ecosystem or a blockchain and a token will be issued that will be used. And that's what people buy it for, there's no promise of profit, I think that's a potential and that's up to people to propose it so that it makes sense," Szczepanik said.

At various points, she noted that while the SEC is not looking to stifle innovation or prevent capital formation, its primary focus is investor protection.