U.S. Securities and Exchange Commission (SEC) released a letter addressing the closure of U.K.-based Coinschedule, a platform that promoted the launch of over 2,500 digital tokens. Two commissioners that drafted the letter, Hester M. Peirce (also known as Crypto Mom) and Elad L. Roisman, called on the SEC to offer more regulatory clarity on which digital assets constitutes security and those that don’t.
Earlier in the month, SEC released their order addressing Coinschedule and its platform that offered U.S.-based token projects and purchasers over 2,500 digital tokens “including those that were offered and sold as investment contracts”. According to Section 2(a)(1) of the Securities Act, investment contracts are pursuant to rules governing securities.
The company was then forced to disclose their compensation for highlighting and profiling the digital assets on their platform – they declined to do so. However, Peirce and Roisman condemned the route that the SEC took in handling the case as no clear rules were formulated and the order did not name the digital assets on Coinschedule that are securities.
“We nevertheless are disappointed that the Commission’s settlement with Coinschedule did not explain which digital assets touted by Coinschedule were securities,” the letter reads. “[An] omission which is symptomatic of our reluctance to provide additional guidance about how to determine whether a token is being sold as part of a securities offering or which tokens are securities.”
Good point. I'll get right on that…Oh wait, I'm only one of five Commissioners. But I am working on it: https://t.co/aRYPKAjutQ
— Hester Peirce (@HesterPeirce) July 14, 2021
Despite the crypto ecosystem being over 12 years old, the SEC is yet to formulate a definitive document explaining which digital assets are securities. There’s still a “decided lack of clarity for market participants around the application of the securities laws to digital assets and their trading,” the letter reads.
The two commissioners were also vocal on the Coinschedule order lacking any guiding recommendations on which of the 2,500 digital assets constituted securities. In the Coinschedule order, an unspecified quantity of the publicized tokens was profiled as securities, but the order offered no specific criteria or list on which digital assets are securities.
As such, the regulatory space has been left with a “void” and most digital projects now need to look at previous enforcement efforts and litigation to guide them on what is a security or not. However, this is not an ideal situation for the dynamic and innovative crypto industry as it may not “produce clear answers”, Roisman stated.
“Providing guidance piecemeal through enforcement actions is not the best way to move forward; if the Commission intends to continue to do so, then we should at least be clear about which tokens we have identified to have been sold pursuant to securities offerings”.