Positive Legal Development – The SEC Issues New Token Safe Harbor Proposal
On April 13, 2021, Commissioner Hester M. Peirce of the U.S. Securities and Exchange Commission (the “SEC”) released an updated version of the token safe harbor proposal that was originally suggested in February 2020.
The safe harbor proposal seeks to provide network developers with a three-year grace period within which, under certain conditions, they can facilitate participation in and the development of a functional or decentralized network, exempted from the registration provisions of the federal securities laws.
Three significant changes mark the updated proposal.
With the goal of enhancing token purchaser protections, the safe harbor proposal now requires semi-annual updates to the plan of development disclosure and a block explorer.
The safe harbor proposal now includes an exit report requirement at the end of the three year grace period. The exit report would include either an analysis by outside counsel explaining why the network is decentralized or functional, or an announcement that the tokens will be registered under the Securities Exchange Act of 1934.
The exit report requirement provides guidance on what outside counsel’s analysis should address when explaining why the network is decentralized. The guidance is not a bright-line test, but rather attempts to strike a balance between providing a manageable number of useful guideposts while maintaining sufficient flexibility for the facts and circumstances of each network to be considered in the analysis.
If you have any questions about this Alert, do not hesitate to reach out to Daniel Viola (Partner – Head of the Regulatory Group) at 212.573.8038 or via email at dviola@sadis.com.
