Perhaps the best way to understand a subject that is complex and evolving is to go back to basics. That means starting with the very definition of a security.
Securities in finance refer to products that are considered to be financial instruments that can be traded for value. Or, in layman’s terms, a stock that can be sold for money is a security.
Two pieces of legislation passed to address market abuses that contributed to the Great Depression continue to guide our definition. The Securities Act of 1933 and The Securities Exchange Act in 1934 lay out different financial products that are properly characterized as securities.
A Supreme Court case in 1946 provided more definition. In SEC vs. Howey, SCOTUS set out four defining marks of a security:
That brings us to today. Suffice it to say, cryptocurrencies were not addressed in the 1930s legislation. That leaves “the Howey test” as the determining factor in what is an “investment contract” versus what is a commercial transaction.
The Securities & Exchange Commission (SEC) holds regulatory power over securities in general. The SEC issued a report in which they took the Howey Test and offered more insights into how it ought to be interpreted when it comes to cryptocurrency. This guidance can be particularly important when putting out an Initial Coin Offering (ICO).
Issues the SEC is likely to look at include:
There remain at least as many questions as there are answers when it comes to cryptocurrency and securities. The issue is subject to no shortage of turf battles in Washington D.C., as regulatory agencies want oversight power.
What all of this means for those trading in cryptocurrency is the need to rely on experienced counsel. When the law and current regulations are ambiguous, the best guide is someone who knows how similar issues have been resolved previously. Those in the cryptocurrency space need some measure of stability. And while current law isn’t going to provide that, a smart Miami crypto securities lawyer at least means having good legal leadership to fall back on.
Call our office today at (877) 771-1131 or contact us online to set up a consultation and secure your crypto investments.
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