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SEC staff says token buybacks are not securities if networks are functional

The SEC staff also warned that for non-functional networks, buyback announcements can be treated as promises tied to yield or returns, which would be more likely to meet the Howey test.

Reported · Written up by our desk · Regulation

Crypto projects considering token buyback programs received new guidance from the SEC staff, which said that once a crypto system is functional, announcing a buyback does not amount to a promise of essential managerial efforts, a key factor in the Howey test.

The SEC staff said the analysis changes for networks that are not functional yet, where buyback announcements could cross the line if the issuer frames the program as generating yield or returns for holders.

The FAQs further stated that after a network becomes functional, promises to maintain, upgrade, or grow it would not satisfy Howey, and that promoting the system's current uses or making vague, aspirational statements without touting profit would also likely not meet the test.

Decrypt reports the guidance was published in new FAQs and cited corporate securities attorney Gabriel Shapiro, who said the securities laws are starting to look more opt-in as applied to crypto.

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