Americans’ concerns abound. Will they get that raise? How are their kids doing in school? Is that ransomware email claiming recorded porn watching real? But one concern tops the rest. What is Securities and Exchange Commission ‘Senior Advisor for Digital Assets and Innovation’ Valerie Szczepanik, aka NPC Valerie, doing for her taxpayer-funded quarter-million dollar salary, benefits, cross-country junkets, and pension? The question on everyone’s mind has now penetrated the SEC’s highest levels via Commissioner Hester Peirce, aka Crypto Mom.
Ms. Szczepanik is a card-carrying member of the ‘Machine’: the credential-and-prestige obsessed cabal of East Coast lawyers and fancy-degreed personages that land each year at name-brand federal agencies to direct the American experiment while disclaiming responsibility for the results. These personages don’t do anything. They exist to build media profiles, attend conferences, banquets, other soirees on the taxpayer dime.
Boredom or dollar signs eventually shunt most to an NGO, nonprofit, white-shoe law firm, lobbying shop, or other influence-peddling post.
No one questions any of this. Since the New Deal, it’s been the price the intellectual class has imposed on the rest of us for the privilege of being Americans. But given the stakes and potential blockchain and digital currencies proffer, some have grown annoyed with SEC Machine protocol. Crowdfund Insider a house organ for Machine securities lawyers recently criticized Chairman Jay Clayton’s leadership, most, of course, in anonymous poltroonery.
As someone more concerned with the U.S. economy than state dinners, Crypto Mom’s criticism is more weighted, and admirably, name adorned.
In describing the SEC’s crypto Rube Goldberg guidance, she aims straight, even at NPC-in-charge, Ms. Szczepanik. She also skewers the Commission’s years-long refusal to approve any Reg A+ token sales. Her plain English comments, lacking hide-the-ball cant surely had SEC staff scrambling for their google translators to decode her message:
The SEC staff recently issued a framework to assist issuers with conducting a Howey analysis of potential token offerings. The document is a thorough 14 pages. It points to features of an offering and actions by an issuer that could signal that the offering is likely a securities offering. If this framework helps issuers understand what the different Howey Factors might look like in an ICO context, it may be valuable. I am concerned, however, that it could raise more questions and concerns than it answers.
While Howey has four factors to consider, the framework lists 38 separate considerations, many of which include several sub-points. A seasoned securities lawyer might be able to infer which of these considerations will likely be controlling and might therefore be able to provide the appropriate weight to each. Whether the framework gives anything new to the seasoned securities lawyer used to operating in the facts and circumstances world of Howey is an open question. I worry that non-lawyers and lawyers not steeped in securities law and its attendant lore will not know what to make of the guidance.
Pages worth of factors, many of which seemingly apply to all decentralized networks, might contribute to the feeling that navigating the securities laws in this area is perilous business . . .
On the accompanying TurnKey Jet No-Action Letter
This transaction is so clearly not an offer of securities that I worry the staff’s issuance of a digital token no-action letter—the first and so far only such letter—may in fact have the effect of broadening the perceived reach of our securities laws. If these tokens were securities, it would be hard to distinguish them from any medium of stored value. Is a Starbucks card a security? If we are going that far, I can only imagine what name the barista will write on my coffee cup
And yet, the staff’s letter did not stop at merely stating that the token offering would not qualify as a securities offering, but highlighted specific but non-dispositive factors. In other words, the letter effectively imposed conditions on a non-security . . .
I do not believe there was anything gray about the area in which TurnKey planned to operate, but issuing this letter may give the false impression that there was.
On the lack of SEC approval for a Reg A+ token
Unlike a private offering, however, a Regulation A offering must be qualified by the SEC before the issuer can begin raising money. Although several companies seeking to issue tokens have begun the process, none has yet had its Regulation A offerings qualified. The lack of progress is not only difficult for the companies that remain in limbo, unable to move forward with raising capital, but also may scare off other companies. These companies may opt for a private offering instead, depriving the general public of the opportunity to invest, and also depriving the market of the public disclosure of the information included in the Regulation A offering materials
It would be nice to think Crypto Mom’s criticisms will spur some paradigm shift in SEC protocol. But that is as likely as the Commission declaring itself a separate country. Crypto Mom’s name came from her distinct stances. And even another three commissioner-level crypto moms would have to battle—directly or discreetly—the hordes of NPC Valeries roaming the Commission’s austere halls. Staff controls most chores because little jumps to commissioner level and still less gets to Congress. For now, we must hope Crypto Mom continues Crypto Momming and some crypto dust infiltrates Commission thinking. One can hope.