Last June, we wrote about guidance published by the Canadian Securities Administrators (CSA) on whether and how securities laws apply to offerings of crypto-currency tokens. Now, staff of the U.S. Securities and Exchange Commission (SEC) have published guidance in the form of a framework (Framework) for analyzing whether the offer, sale or resale of a particular digital asset is subject to U.S. federal securities laws. SEC staff also released a no-action letter confirming that it would not take enforcement action against TurnKey Jet, Inc. for selling tokens without registration under securities laws (TurnKey Letter). The TurnKey Letter will be of particular interest to entities seeking to take advantage of the commercial functionality and record-keeping features of a private, permissioned and centralized blockchain network and smart contract infrastructure, rather than the profit elements of the token.
Although the U.S. and Canadian securities law approaches to the question of what constitutes a security aren’t identical, both include an “investment contract” analysis as one of their tests for determining what constitutes a security. Therefore, we believe that these recent SEC publications may be of interest to Canadian capital market participants exploring the use of digital assets.