Are cryptocurrencies considered unregistered securities? Are some cryptos treated differently from others? What is an unregistered security, anyway? These are questions swirling around in the crypto world \u2014 and even confounding some legal experts.<\/p>\n
Robinhood Sound familiar? Unregistered securities were in the spotlight a few months ago when Taylor Swift famously avoided being embroiled in a scandal related to the collapse of FTX in November. The singer-songwriter asked one question when the company approached her to promote its tokens for a reported $100 million: \u201cCan you tell me that these are not unregistered securities?\u201d\u00a0<\/p>\n It was a smart question, and a timely one \u2014 given the rise of crypto in recent years. Anyone who promotes unregistered securities can be held liable, according to the SEC.<\/p>\n So what are unregistered securities \u2014 and how do they relate to crypto? And are all cryptocurrencies unregistered securities?\u00a0<\/p>\n The question about unregistered securities is really a two-part issue: Which assets are considered securities? When are they not<\/em> registered?\u00a0<\/p>\n For the registration part, federal law requires securities available for sale to be publicly registered with the SEC and to meet certain disclosure requirements, unless there has been an exemption granted. It\u2019s essentially an act to protect investors, legal experts said, so that investors can better understand what they are buying. The registration is also designed to crack down on fraudulent activities, including deceit and misrepresentation.<\/p>\n If a security is not registered, it means investors can lose layers of protection, including not being able to identify a clear money trail or to track when an investment has failed, said Tyler Rutherford, associate attorney focused on crypto and securities at law firm Pastore in Stamford, Conn.<\/p>\n \u201cIt makes it a lot more difficult for them to try to hold that actor accountable and recoup their losses,\u201d Rutherford said.\u00a0<\/p>\n The SEC warned investors in March that no crypto asset entity had been registered with the regulator as a national securities exchange. In addition, none of the existing national securities exchanges, such as the New York Stock Exchange or the Nasdaq, were trading crypto, meaning investors could be vulnerable to front-running, manipulation and other types of misconduct.\u00a0<\/p>\n That doesn\u2019t mean crypto companies haven\u2019t expressed an interest in the registration process. Coinbase has argued the problem has been that the SEC wasn\u2019t allowing it to register, citing a lack of regulatory guidance.\u00a0<\/p>\n \u201cWe met with the SEC more than 30 times over nine months, but we were doing all of the talking,\u201d the crypto exchange wrote in a blog post in March.\u00a0<\/p>\n \u201cThere\u2019s ambiguity around the process,\u201d Rutherford said. \u201cThere are no clear steps on how these exchanges or these cryptocurrencies are supposed to register [and] how exactly they are supposed to comply.\u201d<\/p>\n While SEC Chairman Gary Gensler maintains that regulations around securities registration are clear, Rutherford added, \u201cI think they are neglecting the fact that it truly isn\u2019t black and white.\u201d\u00a0<\/p>\n On top of that, cryptocurrencies are sometimes considered a commodity, rather than securities, and that\u2019s the tricky part, legal experts say.\u00a0<\/p>\n Securities refer to financial investments in a common or shared enterprise that also earn profits for the investor, according to the 1946 Howey Test. They are registered with the SEC, while commodities are regulated by the Commodity Futures Trading Commission.\u00a0<\/p>\n A commodity is a product that can be commonly traded. Some common commodities include copper, crude oil, cotton and corn.\u00a0Even defining cryptocurrency as a commodity does not protect it from regulation probes or regulatory vagueness. The CFTC has also alleged the biggest two crypto exchanges for violating commodity trading laws.<\/p>\n
\n HOOD,
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\n announced last week that it is removing three crypto tokens from its platform. That\u2019s the latest ripple effect of actions taken by the U.S. Securities and Exchange Commission (SEC), including charges filed against major crypto exchanges Binance and Coinbase
\n COIN,
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\n related to the sale of unregistered securities.<\/p>\nRegistered vs. unregistered<\/strong> securities<\/h2>\n
Securities vs. Commodities<\/strong><\/h2>\n