Through their recent actions and statements, the Securities and Exchange Commission (SEC) has further clarified their position with respect to digital assets and ICOs. Following on from earlier enforcement efforts throughout 2017 and 2018, the SEC Enforcement Division settled cases with AirFox and Paragon, two issuers of unregistered securities in tokenized form, in addition to a settlement with the founder of a purported decentralized exchange, EtherDelta.

The SEC Policy Divisions released a rare joint statement affirming their agreement with the actions of the Enforcement Division and emphasizing the potential applicability of the federal securities laws to fundraising efforts, regardless of the form of technology used. In addition, SEC Chairman Jay Clayton also made numerous public appearances to reinforce this message. Some key developments include the following:

  • For the first time, the SEC has required an issuer of an unregistered security in tokenized form to register the security and notify purchasers of their rescission rights.
  • The SEC has clarified that its approach to digital assets is a cohesive one among all divisions.
  • Chairman Clayton discussed his understanding of how an asset could convert from being a security to a non-security (i.e., ‘mutability’).

In this update, we provide background on the AirFox and Paragon cases, detail the SEC Policy Divisions’ joint statement and Chairman Clayton’s comments, and look at next steps for participants in the digital asset arena.