Digital Assets as Securities: SEC Corporation Finance Director Lays Out the Staff’s Analysis in Assessing Whether Digital Assets Constitute Securities

Sullivan & Cromwell LLP - June 18, 2018
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On June 14, William Hinman, Director of the Division of Corporation Finance of the SEC, delivered a speech at the Yahoo Finance All Markets Summit in San Francisco, in which he laid out the analysis applied by the SEC staff in assessing whether a digital asset constitutes a security.  The speech, which has been published on the SEC’s website,  provides two sets of non-exhaustive factors to use in assessing the status of a given asset as a security.  However, the speech emphasizes that the SEC will continue to focus on the economic substance of transactions to determine when the securities laws are applicable, and where those transactions involve raising capital from investors to fund a venture, the securities laws generally will apply.  Without addressing any other digital asset specifically, Hinman separately confirmed that current offers and sales of ether and bitcoin are not securities transactions.  In reaching this conclusion, Hinman focused on the operational and decentralized nature of the underlying networks on which these two digital assets exist.