SEC Commissioner Peirce issues revised token safe harbor proposal

On April 13, Securities and Exchange Commission (SEC) Commissioner Hester Peirce announced she had issued an update to her 2020 token safe harbor proposal. 

The updated proposal includes a draft of proposed Securities Rule 195 which would provide a time-limited exemption for tokens. The safe harbor would last for three years and only apply if certain conditions are met including (i) making specified disclosures required by the proposed rule on a freely accessible public website, (ii) offering and selling the token for the purpose of providing access to, participation on or the development of the network, (iii) filing a notice of reliance on the exemption with the SEC with certain specified information; and (iv) filing an exit report within three years containing specified information regarding network maturity or failure to achieve network maturity.  In the latter case, the exit report must acknowledge that the tokens will be registered as securities.

The proposed rule provides two paths to an exit that would allow the company to keep operating without registration of the tokens: network maturity for a decentralized network and network maturity for a functional network. In either case the company filing the exit report must include in its report an analysis by outside counsel analyzing specified topics designed to demonstrate that the company has either a decentralized or functional network.   

During the three-year safe harbor, companies must make semi-annual updates to required disclosures regarding their plan of development. Required disclosures also include information about the source code, network transaction history, token economics, initial development team and certain token holders, trading platforms, token sales, related person transactions, and risk warnings.

Commissioner Peirce has urged the SEC, with new Chair Gary Gensler, to consider how to modify existing SEC rules to accommodate new technology. She is seeking public feedback on the updated proposal.

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