SEC Staff Says Token Buybacks Don't Make Crypto a Security—If the Network Works

In brief

• The SEC’s Division of Corporation Finance said buyback announcements on functional crypto networks don’t count as promises of “essential managerial efforts” under the Howey test.
• For networks that aren’t yet functional, pitching buybacks as a source of yield or returns could still trigger securities laws.
• Attorney Gabriel Shapiro called the guidance a “loophole,” but noted it’s staff guidance without legal force that a future SEC could reverse.

Crypto projects looking to buy back their own tokens just got a green light from the SEC’s staff, with one big condition.

In new FAQs published Friday, the agency’s Division of Corporation Finance said that once a crypto system is functional, announcing a token buyback program doesn’t amount to a promise of “essential managerial efforts.” That’s a key ingredient of the Howey test, the Supreme Court standard for deciding whether something is an investment contract, and therefore a security.

The picture changes for networks that aren’t functional yet. There, staff said, a buyback announcement could cross the line if the issuer pitches it as generating yield or returns for holders.

The FAQs also said that after a network is functional, promises to maintain, upgrade or grow it wouldn’t satisfy Howey. Promoting a system’s current uses, or making vague aspirational statements that don’t tout profit, likely wouldn’t either.

Gabriel Shapiro, a corporate securities attorney at MetaLeX Labs and former general counsel at Delphi Labs, said the guidance goes a long way.

“The securities laws are starting to look opt-in now, at least as applied by the SEC to crypto,” he wrote on X. The buyback section, he added, “goes further than I expected.”

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In Shapiro’s reading, teams can keep building, prop up prices with buybacks and enjoy many perks of a public investment without giving holders shareholder-style rights. “They have opened a loophole in a regulatory regime whose whole point was supposed to be that you couldn’t draft your way around economic reality,” he wrote.

Crypto’s bigger trend, he argued, isn’t tokenized equity but the drive to “get all the benefits of equity with none of the burdens.”

The FAQs, which carry no legal force, build on the SEC’s March interpretive release and its Regulation Crypto Assets proposal. That proposal would let projects sell tokens without full registration. The FAQs also follow the agency’s new innovation exemption for tokenized stocks, unveiled after the Clarity Act failed in the Senate.

SEC Chair Paul Atkins had signaled in July that the agency would step in if the bill faltered, and the CFTC issued a similar warning in August.

The crypto industry has largely embraced regulators as its path forward, though agency rules are easier to unwind than laws. Shapiro made the same point: “A private plaintiff or a future SEC could have other ideas.”

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