SEC staff clarifies that token buybacks on functional networks do not automatically classify tokens as securities, easing regulatory uncertainty for crypto projects.
Regulation & Gov ·
The SEC's Division of Corporation Finance released new guidance clarifying that token buyback announcements on operational crypto networks do not automatically constitute promises of "essential managerial efforts" under the Howey test, the legal standard for determining whether an asset qualifies as a security. The guidance, published in FAQs on Friday, creates a functional network threshold: for systems already live, buyback programs fall outside securities classification, while non-functional networks face stricter scrutiny if buybacks are pitched as yield-generating investments to holders.
The ruling extends to other issuer commitments, with staff indicating that promises to maintain, upgrade, or expand a functional network similarly would not trigger Howey's managerial-efforts prong. Vague aspirational statements and promotion of current network uses likewise appear exempt from securities treatment once a system is operational. Gabriel Shapiro, a corporate securities attorney, characterized the guidance as unexpectedly permissive, suggesting it allows teams to "keep building, prop up prices with buybacks" while avoiding traditional shareholder obligations—a dynamic he described as creating a "loophole" in regulatory design.
The FAQs carry no binding legal force and represent staff interpretation that a future SEC administration could reverse or challenge. The guidance builds on the agency's prior March interpretive release and its Regulation Crypto Assets proposal, which would permit token sales without full registration. Shapiro cautioned that private plaintiffs or a subsequent SEC leadership could reach different conclusions on the same facts.