Heard on F Street: SEC Fintech Forum Engages with Crypto Industry to Discuss Digital Asset Regulation

Last Friday, the Securities and Exchange Commission (SEC) held its first Fintech Forum in years. The topic of discussion was the regulation of digital assets and distributed ledger technology (DLT). The interaction between presenters and SEC staff provided a glimpse into the progress and struggle behind regulating the new iteration of securities.

The Promise of the New Technology

“DLT works to create ecosystems the likes of which we have not been imagined before now,” stated Valerie Szczepanik, the head of the SEC’s FinHub as she opened proceedings.

While still nascent, said Szczepanik, DLT has created a way to transfer value but unlike speech on the internet, transfer of value can be highly regulated. It is important for the regulators to better understand the potential benefits as well as the risks she explained.

“We want to encourage beneficial innovation,” said Szczepanik. “While guarding against any harmful consequence. That balancing act is a difficult one. And we as regulators want to get that balance right. Why? Because it can mean the difference between fostering efficient and safe new ways to raise capital and trade assets on the one hand, or potentially permitting harmful systems, products, and practices on the other.”

One result can help markets. The other result can “cast a dark shadow” on the new technology, something that would dim the potential for innovation.

That is a result that no one who supports this technology would want, said Szczepanik.

SEC Chairman Jay Clayton was present for the opening of the event. Clayton said DLT is a new technology that has great promise for both efficiency and ability:

“But it doesn’t fit neatly into any spot within the Commission,” Clayton stated.

He expressed his opinion that blockchain possessed promise as well as challenges and lauded Szczepanik’s considerable efforts at the Commission.

Following a complimentary introduction by Chair Clayton, Crypto Mom – SEC Commissioner Hester Peirce, made a few comments.

Peirce said the opportune moment is now to work with the developers of the technology to make certain a well-intentioned framework is not an unnecessary barrier to the achievement of something good for society. The popular Commissioner attended a good portion of the Forum as an observer.

The scheduled panels were informative if lawyer heavy. Of note, Directors of the various SEC divisions took the opportunity to provide some insight into their regulatory perspective.

As previously reported, SEC Director of Corporate Finance, Bill Hinman, told the audience that a token may exist, and trade, while not being a security. While lacking in clarity, this comment should provide hope to utility token proponents. Hinman said we (the SEC) are eager to see the technology succeed.

Brett Redfearn, Director of Trading and Markets at the SEC, said that many regulations are still evolving. Redfearn assured the audience that just because trading takes place on a public blockchain securities law still applies. Otherwise, this would “disregard the Commission’s well-established framework for regulating exchanges.”

“Those online trading platforms located off-shore that offer securities services to persons in the United States, or solicit US investors to engage in primary or secondary trading of securities, also must register here [in the US],” sated Redfearn – without mentioning any specific crypto exchanges by name.

Thus an external crypto exchange must take “reasonable” steps to assure US persons do not utilize their services – unless they are registered as an exchange. These are early days for blockchain and Fintech in general, said Redfearn.

“Many digital asset trading platforms still suffer from poor execution quality, wash trading, and other manipulative devices,” warned Redfearn.

Dalia Blass, the SEC Director of the Division of Investment Management, addressed the topic of funds, such as ETFs, that may hold crypto and their approach to regulating these types of digital assets.

“Our request for conversation has fostered a number of constructive conversations and given the staff information to further our understanding,” Blass said.

Questions such as custody, valuation, liquidity, and the potential for manipulation were addressed in an open consultation commenced by Blass back in early 2018.

Blass said that some of the most constructive input has recognized that technological innovation is important but so is the investor focused foundation of the investment company act. She believes rules that have previously served the Commission well should not be sacrificed just to promote a nascent technology nor new investment type. More specifically, those targeting main street investors.

“Our doors are always open,” Blass told the audience, encouraging crypto-entrepeneurs to share their ideas with them.

The Director of the Office of Compliance, Inspections, and Examination, Pete Driscoll, told the audience they strongly embrace innovation and technology. Tech can drive down cost and improve investment returns. Driscoll said that the OC continues to closely monitor the issuance and trading of digital assets.

“OC is taking steps to identify market participants offering, selling, trading, and managing these products or considering, or actively seeking to manage these products and then assess the extent of their activities.”

In 2018, OC launched an investigation into investment advisory activity related to cryptocurrencies, initial coin offerings, secondary market trading, and blockchain technologies in general.

This continues to be a priority for OC in 2019, said Driscoll. He shared that regulated advisors are treading carefully before entering this space.

“When you get too prescriptive things tend to go out of date rather quickly.”

While the desire for perfection should not get in the way of innovation, the message was clear. The SEC is hesitant to over-regulate, or craft new rules, before they completely understand the evolving technology and what it means for regulated markets.

It is the hope of many industry participants that the SEC does not wait another three years for their next Fintech Forum.

If you have the time, and have not already viewed the SEC Fintech Forum, you may view it here.

SEC Director of CorpFin Bill Hinman Provides Crowdfunding Update at Small Business Capital Formation Advisory Committee Meeting

Earlier this week, the inaugural meeting of the Small Business Capital Formation Advisory Committee (SBCFAC) took place at the Securities and Exchange Commission (SEC) in Washington, DC. The new Committee brings together a diverse group of small business proponents including several Fintechs. Led by Martha Miller, the Small Business Capital Formation Advocate at the SEC, the meeting saw the participation of SEC Director of Corporate Finance, Bill Hinman, provide an update on regulatory items of note for the online capital formation sector.

CorpFin has oversight over the existing securities exemptions including Reg D, Reg A+, and Reg CF – each exemption is utilized to raise capital online.

Hinman said the SEC will soon be reporting on both Reg A+ and Reg CF, both part of the JOBS Act of 2012, and how they have been used since they became actionable, perhaps providing valuable insight into progress of the exemptions.

Reg A+ allows an issuer to raise up to $50 million in an “IPO light” type offering requiring extensive offering documents while Reg CF allows an issuer to raise up to $1.07 million via online, FINRA regulated, “portals” or broker-dealers.

Hinman said both he and the SEC Chair, Jay Clayton, have been looking at improving access to capital beyond the coastal centers of innovation. Chair Clayton has consistently stated that access to capital was a top priority for his tenure at the Commission.

Hinman said the SEC was in the process of reviewing previous recommendations which were submitted by this Committee’s predecessor.

Speaking specifically about Reg CF, Hinman characterized the exemption as still small in contrast to other exemptions when considering amounts raised:

“We do think it is important and we want to make certain we optimize Reg CF.”

Hinman reported that the SEC has been receiving a lot of comments as to how the exemption can be improved.

“Right now we count about 1300 offerings done under the crowdfunding [Reg CF] regulation. Out of that 1300, a little less than half, about 520 or so, have actually raised the targeted amounts. And I think a total of about $110 million has been raised. So, relative to Reg D, or even Reg A, the amounts are modest, but the numbers are increasing and we hear a lot of interest when we go out and speak around the country. So this is something we will be keeping an eye on.”

Hinman said the SEC will be looking for the Committee’s recommendations when it comes to Reg CF. Hinman said there might be some things they can do to improve the exemption, such as raising the limits for the amount that can be raised as well as the amounts that investors can put in.

In months past, a group of Fintech leaders in the US petitioned Chair Clayton to raise the Reg CF limit to $20 million.

“We are interested in the Committee’s thoughts on crowdfunding…,” Hinman stated.

Hinman also addressed Regulation A (Reg A+), Title IV of the JOBS Act. This updated exemption was segregated into two tiers with tier 2 allowing an issuer to raise up to $50 million while being exempt from state review (blue sky). The SEC is due to report on the status of Reg A+ this year as well.

Hinman said they are going to be looking at the size of raises under tier 2 of Reg A+ perhaps intimating an inclination to push the cap higher. There have been previous discussions, and proposed legislation, to mandate an increase for Reg A+, thus making it more palatable for larger issuers.

Tier 2 has gotten a lot of activity, according to Hinman. In part because of lack of state review (tier 1 must be state reviewed) – a costly and time-consuming task for an issuer and the reason old Reg A was never utilized.

“We see a lot of folks doing tier 2 offerings at amounts that could have been raised under tier 1. So they are willing to go a little bit further in the disclosure and live with tier 2 standards to afford themselves the preemption protections.”

Since Reg A+ came into existence, Hinman reports that 360 offerings have been submitted under tier 2. About 277 have actually been qualified by the SEC Staff and 132 of these offerings have actually raised proceeds.

“There is a bit of delay from when folks get qualified as to when the deal gets done.”

The total amount raised under tier 2 has been $1.4 billion, according to Hinman, an average per deal of about $10.6 million.

“Again, we are looking at the size limits there,” said Hinman. “And other ways that may be improved.”

Hinman said the Committee’s input will be very valuable.

“We are looking as to how we can harmonize our private placement exemptions,” Hinman explained. “We are thinking about doing a concept release on the harmonization of our various private placement exemptions. There is a whole network of exemptions, some would call it a patchwork, that have grown over time, some by statute … Reg D being the larger and most often used.”

Hinman posed the rhetorical question as to can the SEC do things to make this patchwork of exemptions fit better together and better serve a company’s lifecycle.

He touched upon the current definition of an accredited investor, a rule that excludes most of the population from participating in the majority of exempt offerings – something many people view as a regulatory disenfranchisement.

“Right now we see a very binary system in terms of accredited investors. Generally, if you are an accredited investor you can invest unlimited amounts – if not [accredited], you cannot invest a penny.”

Hinman said they want to examine if this is the “right approach.” Perhaps there are opportunities to scale access across all exemptions.

The discussion regarding the definition of an accredited investor was described as a forthcoming, significant release, from the SEC.

Many crowdfunding industry participants believe that Reg CF is mortally wounded in its present iteration, exemplified by the lack of utilization and its many obvious flaws. Any change to the definition of an accredited investor could go far in fixing the overall shortcomings of online capital formation.

Most other international jurisdictions do not offer a “patchwork” of exemptions. Typically there is only one with some segmentation between investor sophistication.

Depending on what the SEC finally produces in its harmonization project, the Commission has a unique opportunity to improve access to capital, as well as access to investment opportunity, for the entire country. While no timing on the pending concept releases was provided, one would assume the reports will surface in the coming months.

Small Business Advocate Martha Miller said they hear a lot of questions about progress at the SEC pertaining to access to capital. She said they ask “where is it?” She said here it is … referencing Hinman’s comments and the forthcoming concept releases.

Long Anticipated, SEC Issues Framework & Guidance for Digital Assets

The Securities and Exchange Commission (SEC) has published a statement on the “Framework for ‘Investment Contract’ Analysis of Digital Assets”

The public statement announcing the Framework was co-signed by Bill Hinman, Director of Division of Corporation Finance and Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation.

The clarity in the regulatory approach regarding blockchain technology and digital assets has long been messaged by the Commission. While the statement represents SEC Staff views and is not viewed as a set in stone rule, regulation, or statement of the Commission, the publication should be positively received by this fast emerging sector of Fintech.

Largely based on the Howey Test, the guidance provides insight as to when a cryptocurrency may be traded and perhaps not be deemed a regulated security.

The statement concludes:

“[this] identifies some of the factors to be considered in determining whether and when a digital asset may no longer be a security. These factors are not intended to be exhaustive in evaluating whether a digital asset is an investment contract or any other type of security, and no single factor is determinative; rather, we are providing them to assist those engaging in the offer, sale, or distribution of a digital asset, and their counsel, as they consider these issues.”

The framework is being published in coordination with a No-Action letter by the SEC regarding the issuance of digital tokens for TurnKey Jet – a company that requested the Commission deem its TKJ token not be viewed as a security.

Crowdfund Insider Contributor and Security Attorney Anthony Zeoli provided a comment on the new Digital Asset Framework:

“It is great to see the SEC taking affirmative actions to help define what tokens/cryptocurrencies will be treated as securities. In order for this industry to reach its full capabilities the players need to know the rules and this new guidance goes a long way towards defining those rules.”

The framework and public statement from CorpFin are displayed below.

April 3, 2019

Blockchain and distributed ledger technology can catalyze a wide range of innovation.  We have seen these technologies used to create financial instruments, sometimes in the form of tokens or coins that can provide investment opportunities like those offered through more traditional forms of securities.  Depending on the nature of the digital asset, including what rights it purports to convey and how it is offered and sold, it may fall within the definition of a security under the U.S. federal securities laws.

As part of a continuing effort to assist those seeking to comply with the U.S. federal securities laws, FinHub is publishing a framework for analyzing whether a digital asset is offered and sold as an investment contract, and, therefore, is a security.  The framework is not intended to be an exhaustive overview of the law, but rather, an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset.  Also, the Division of Corporation Finance is issuing a response to a no-action request, indicating that the Division will not recommend enforcement action to the Commission if the digital asset described in the request is offered or sold without registration under the U.S. federal securities laws.

As financial technologies, methods of capital formation, and market structures continue to evolve, market participants should be aware that they may be conducting activities that fall within our jurisdiction.  For example, market participants may engage in activities that require registration of transactions and persons or entities involved in those transactions.  Even if no registration is required, activities involving digital assets that are securities may still be subject to the Commission’s regulation and oversight.  More specifically, the information contained in this framework may apply to entities conducting the following activities related to digital assets:

  • offering, selling, or distributing
  • marketing or promoting
  • buying, selling, or trading
  • facilitating exchanges
  • holding or storing
  • offering financial services such as management or advice
  • other professional services

This framework represents Staff views and is not a rule, regulation, or statement of the Commission.  The Commission has neither approved nor disapproved its content.  This framework, like other Staff guidance, is not binding on the Divisions or the Commission.  It does not constitute legal advice, for which you should consult with your own attorney.  It does not modify or replace any existing applicable laws, regulations, or rules.  Market participants are encouraged to review all the materials published on FinHub.

The Staff recognizes that determining whether a new type of financial instrument, including a digital asset, is a security can require a careful analysis of the nature of the instrument and how it is offered and sold.  If after applying the framework, market participants have questions regarding whether a particular digital asset is a security, they are encouraged to reach out to the Staff through FinHub’s web form.

[pdf-embedder url=”https://staging-crowdfundinsider.kinsta.cloud/wp-content/uploads/2019/04/SEC-dlt-framework-April-3.pdf” title=”SEC dlt-framework April 3″]

Report: SEC Director of CorpFin Says Cryptocurrency Guidance Coming

According to a report today, the Director of Corporate Finance, Securities and Exchange Commission (SEC), Bill Hinman, told an audience at DC Fintech Week that guidance will be forthcoming for cryptocurrency issuers.

The report first picked up by CoinTelegraph, quoted Hinman:

“We also will be putting out more guidance, the idea is a plain English instrument that people can look at and they’ll bring together sort of my Howey-meets-Gary speech, and that analysis … We’ll elaborate on that in a very plain English way, so ‘do I think I have a security offering,’ look at that guidance and you should be able to sort things out.”

Hinman reportedly said the guidance would be arriving by years end or early 2019.

Hinman has issued several statements on digital assets and the issuance of cryptocurrency in the past. Most notably, is his statement that Ethereum is not considered to be a security (although at the point of issuance this is not as clear). Hinman’s statement was then reaffirmed by SEC Chair Jay Clayton adding credence to the statement.

In the US, all crypto issuers are currently pursuing a security token offering (STO) and filing for a securities exemption. Yet issuers and issuing platforms still affirm their belief that once a token is actually issued, and can be used, it may be considered a utility (and not a security).

Meanwhile, there is chatter on Capitol Hill that legislation is being crafted to better define the emerging digital assets sector.

While some have criticized the SEC’s go slow approach, others have contrasted it to jurisdictions that have simply banned the issuance of crypto.

Developing …

Report: CBOE will Launch ETH Futures Before End of Year

The Chicago Board of Options Exchange (CBOE) expects to follow in the footsteps of their Bitcoin Futures contracts and offer the same for Ethereum. This is according to a report this past weekend from Business Insider.

According to the write up, ETH Futures will launch before the end of the year with the only hurdle being clarifications from the Commodity Futures Trading Commission (CFTC) – the regulator that overseas the futures markets. The CFTC has been adamantly supportive of innovations in the virtual currency sector and has vocally encourage the sector to experiment and grow – as long as the sector remains compliant to existing rules.

Ether or ETH was recently declared not a security by the Securities and Exchange Commission in a speech by SEC  CorpFin Director Bill Hinman. During a Yahoo Finance conference, Hinman stated;

“… And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.”

The pronouncement from SEC leadership has been deemed as an important step in the regulatory process of virtual currencies.  SEC Chairman Jay Clayton voiced his support for Hinman’s statement in a speech last week in Nashville. Chair Clayton recommended that attendees at his presentation review Hinman’s speech as it “outlined the approach staff takes to evaluate whether a digital asset is a security.”

The stars appear to have aligned sufficiently for the CBOE to add ETH to its list of tradable futures. The addition of ETH trading will help to legitimizing the emerging digital currency market. The report also stated that Gemini, the same crypto exchange used for the BTC futures, will be leveraged to provide the necessary data for the ETH Futures contracts.

Ethereum is the second largest crypto following Bitcoin in terms of market cap. A recent market cap pegged ETH at over $29 billion and a price in USD of $288.00 per ETH.

Food for Thought: Will Ethereum’s Shift to Proof of Stake, from Proof of Work, Turn it Into a Security?

Here is an interesting thread I was following recently on Twitter.

As we all know, Ethereum is planning to change from Proof of Work (PoW) to Proof of Stake (PoS). There is no need to dive into the pros/cons .. shoulda coulda debate now, but an interesting discussion regarding its status as a non-security came up in the virtual discussion.

To step back a bit, in June this year, Bill Hinman, the Director of CorpFin at the Securities and Exchange Commission (SEC), pronounced at a Yahoo conference that Ethereum will not be considered a security. To quote;

“… And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.”

The crypto industry breathed a collective sigh of relief.

This appears to be hardening as policy as SEC Chair Clayton has referenced this understanding as recently as this past week.

But in clarifying the “decentralization test,” Hinman raises other questions. What if a non-security crypto becomes less decentralized?

Recently, someone more knowledgable on the topic than I, explained the decentralization test;

“Hinman basically indicated that tokens might avoid securities regulation if the platform is sufficiently decentralized.   What that means is likely to be debated for some time unless the SEC gives concrete guidance.  However, most initial coin offerings (ICOs) I see are substitutes for VC funding where the issuer plans / needs to have a very active role for quite a while / forever.  Even if you read Hinman to allow for the possibility of converting securities into non-securities, I don’t see the majority of ICO projects getting close to an Ethereum / bitcoin like level of decentralization.”

Thus ICOs are, pretty much, always a security.

But taking this debate a step further, would a more centralized Ethereum morph it back into something the SEC would take more interest in? Can you put the Genie back into the bottle?  I am not quite sure.

We reached out to Dan Rice, co-founder and CTO of Sagewise – a legal dispute remediation site for smart contracts, and posed the question;

“Ethereum’s planned move to Proof-of-Stake changes the control dynamics of the network. Right now under Proof-of-Work, miners control network block creation, but under Proof-of-Stake that responsibility shifts to coin stakeholders,” says Rice. “Given that the SEC comments around Ethereum related specifically to it being “decentralized”, the question is, how did they determine it was “decentralized”?

While it is still opaque, there is a chance that Ethereums move could cause the SEC to revisit the current non-security;

“Did the existence of miners play a role in that opinion?  Proof-of-Stake design has some additional commonality with publicly traded company structure in that shareholders/coin-holders have voting power over aspects of the entity,” adds Rice. “The significant difference is that cryptocurrency coin-holders are generally pseudo-anonymous. I don’t believe that pseudo-anonymity makes it more decentralized, but it certainly makes it hard to tell who has control of the network.”

Rice says it would be fascinating if this type of consensus affected the SEC opinion on decentralization.

“I suspect people would shy away from Proof-of-Stake if the SEC suggested that made it more likely to fall under their jurisdiction. For Ethereum, Proof-of-Stake could mean that they voluntarily converted to a system that invited additional regulatory concerns. At some point we probably do need to come up with standardized ways to measure and define “decentralization” and that may clear things up.”

Of course, a bit more clarity, and less circumspection from the SEC would help to clear things up. Perhaps, at some point in the near future, the Commission will offer better guidance but for now, it is certainly food for though.

SEC Chairman Jay Clayton Talks Initial Coin Offerings, Access to Capital at Entrepreneurship Festival

Speaking at the 36|86 Entrepreneurship Festival in Nashville today, Securities and Exchange Commission (SEC) Chairman Jay Clayton addressed the all important topic of entrepreneurship and access to capital. During his tenure at the SEC, Clayton has consistently expressed his intent to improve the ability of smaller firms to gain the funding they need to have a shot of success.

In this specific speech, Clayton said he believes the SEC should be “keenly focused on helping small businesses from coast to coast access capital to grow, create new jobs, and, in turn, provide investors, including our Main Street investors, expanded investment opportunities.” Clayton noted the fact that much of the risk capital in the US ends up in concentrated markets such as California, New York [City] and the Boston area. In fact, 78% of all equity financing for VC-backed firms is dedicated to these states even though they only represent just 20% of the U.S. population.

As for the topic of the emerging digital assets market, it would have been difficult for Chair Clayton to avoid. Beyond the copious amounts of earned media regarding crypto, initial coin offerings are consuming a fair amount of SEC resources.

“No conversation about recent efforts at the SEC to foster innovation would be complete without mentioning our approach to distributed ledger technology [ie blockchain], digital assets, and ICOs. Our efforts in these areas embody two key principles the SEC has followed for many decades— embrace new technologies that cut costs and provide new investment opportunities while continuing to require that our retail investors have access to the material information necessary to make an investment decision, including the key risks involved, as well as other fundamental protections,” stated Clayton.

Pointing to public statements by SEC Director of CorpFin Bill Hinman, Clayton suggested the audience reference Hinman’s speech at the Yahoo Finance All Markets Summit this past June. It was at that forum that Hinman declared Ethereum was not a security – but questioned whether it would have been considered a security at its inception.

Clayton reiterated the frequently stated “facts and circumstances” analysis as to whether, or not, an ICO should be considered a security. Clayton added that their “door remains open” for those that seek to innovate and raise capital – within the guidelines of the law. This is a fact that has been born out by the many trips by digital asset entrepreneurs to the SEC office that this publication is aware of.

Addressing the problem of the lackluster IPO market – something that has been a pressing concern for many years now – Clayton said his agency has taken many meaningful steps to reduce the regulatory burden on pre-IPO firms. Clayton explained;

“Addressing this trend—a problem for which, unfortunately, no single policy initiative exists—will, I believe, yield significant benefits for our retail investors as well as emerging companies themselves. For example, investors in these types of companies will have access to investment opportunities in more companies and will benefit from stronger and more complete disclosure than they would likely receive if companies continued to eschew the public markets as a matter of course. This is particularly the case for Main Street investors who generally do not have the opportunity to invest directly in high-quality private companies. As examples of the SEC’s commitment to promoting capital formation, I will highlight three categories of SEC actions in the public company space: (1) scaled disclosure framework for smaller companies, (2) disclosure modernization and simplification, and (3) staff guidance helpful to the IPO process.”

Addressing investment crowdfunding, Clayton said that Congress and the SEC have taken a number of steps to expand the options that small businesses have to raise capital. From intrastate offerings to Reg CF, Reg A+ and Reg D, the Commissioner believes there are many options.

“Since these rules [the JOBS Act] have gone into effect, small businesses have conducted over 900 offerings that reported raising more than $90 million collectively using Regulation Crowdfunding [Reg CF]. And there have been over 300 offerings that reported raising a total in excess of $1 billion pursuant to Regulation A [Reg A+]. Those amounts, however, are eclipsed by the $147 billion reportedly raised in 2017 using Rule 506(c) of Regulation D, the new exemption that lifted the ban on general solicitation. And even that is dwarfed by use of the traditional private placement exemption in Rule 506(b) of Regulation D to raise over $1.7 trillion in 2017.”

Clayton said the SEC is committed to develop a regulatory framework that equally serves the local mom and pop as well as the big tech firm considering an IPO. Clayton appears to admit that the convoluted ABCD etc. exemption structure that confuses everyone except the lawyers these exemptions enrich, are due for a refresh;

“…do we have overlapping exemptions that create confusion for companies trying to navigate the most efficient path to raise capital?” asked Clayton.


“I doubt anyone would have come up with anything close to the complex system we have today if they were starting with a blank slate,” stated Clayton. “So, I believe we should take a critical look at our exemption landscape, which can be fairly described as an elaborate patchwork. As we embark on this project there are a number of things we should consider.”

The question now remains which issue will Clayton and the SEC consider next.

You may read the speech in its entirety here.

The SEC Appoints Valerie A. Szczepanik as Senior Advisor for Digital Assets in Newly Created Position

The Securities and Exchange Commission (SEC) has appointed Valerie A. Szczepanik as the Associate Director of the Division of Corporation Finance and Senior Advisor for Digital Assets and Innovation. This is a newly created position and highlights the growing recognition by the Commission that digital assets, such as cryptocurrencies and initial coin offerings (ICOs), are here to stay. Szczepanik will report to the Division Director Bill Hinman.

Szczepanik joined the SEC in 1997 and most recently served as an Assistant Director in the Division of Enforcement’s Cyber Unit.  She is the Head of the SEC’s Distributed Ledger Technology (DLT or Blockchain) Working Group, Co-Head of its Dark Web Working Group, and a member of its Fintech Working Group.  Szczepanik received her J.D. from Georgetown Law and her B.S. in Engineering from the University of Pennsylvania.

SEC Chairman Jay Clayton said that Szczepanik’s leadership in the area has been recognized not only within the Commission but also by global financial regulators.

“With her demonstrated skill, experience, and keen awareness of the importance of fostering innovation while ensuring investor protection, Val is the right person to coordinate our efforts in this dynamic area that has both promise and risk,” said Clayton.

Hinman added that Szczepanik was cognizant of the importance of emerging digital assets from the beginning.

“Valerie recognized early on the  securities law implications of developments like blockchain and distributed ledger technologies, and of cryptocurrencies, Initial Coin Offerings, tokenized securities, and other digital instruments. She is a recognized leader in responding to developments in our markets.  I am excited to have her join me and the Division’s staff as the SEC continues to collaborate with retail investors, issuers and other market participants, in this important and rapidly evolving area.”

Szczepanik released a statement on the new position;

“I am excited to take on this new role in support of the SEC’s efforts to address digital assets and innovation as it carries out its mission to facilitate capital formation, promote fair, orderly, and efficient markets, and protect investors, particularly Main Street investors.  I look forward to working closely with staff across the agency, our regulatory partners, and the public as we provide a coordinated and strategic response to developments.”

SEC Will Allow All Companies to Submit Draft Registration Statements on a Non Public Basis

The Securities and Exchange Commission, (SEC) has announced that the Division of Corporation Finance (CorpFin) will now permit all companies to submit draft registration statements relating to initial public offerings for review on a non-public basis.

This process will be available for IPOs as well as most offerings made in the first year after a company has entered the public reporting system. CorpFin said this change will take effect on July 10, 2017.

Bill Hinman, Director of the Division of Corporate Finance, stated;

“This is an important step in our efforts to foster capital formation, provide investment opportunities, and protect investors. This process makes it easier for more companies to enter and participate in our public company disclosure-based system.”

The SEC said that permitting all companies to submit registration statements for non-public review, similar to the benefit used by emerging growth companies (EGC) under the JOBS Act, will provide companies with more flexibility to plan their offering.

The non-public review process after the IPO reduces the potential for lengthy exposure to market fluctuations that can adversely affect the offering process and harm existing public shareholders. By requiring a public filing period prior to the launch of marketing, the process incorporates a feature of the EGC review process that provides an opportunity for the public to evaluate those offerings.

“By expanding a popular JOBS Act benefit to all companies, we hope that the next American success story will look to our public markets when they need access to affordable capital,” said Chairman Jay Clayton. “We are striving for efficiency in our processes to encourage more companies to consider going public, which can result in more choices for investors, job creation, and a stronger U.S. economy.”

The SEC maintains certain statutory authority to alter certain rules. There is hope within the crowdfunding sector the Commission will use this authority to improve on certain aspects of investment crowdfunding.