- The SEC’s Division of Corporation Finance says buyback announcements on functional crypto networks do not count as promises of “essential managerial efforts” under the Howey test.
- For networks that are not yet functional, pitching buybacks as a source of yield or returns could still trigger securities laws.
- Attorney Gabriel Shapiro called the guidance a “loophole,” but noted it is staff guidance without legal force that a future SEC could reverse.
Crypto projects that want to buy back their own tokens received a green light from SEC staff, with one big condition.
In new FAQs published Friday, the agency’s Division of Corporation Finance said that once a crypto network is functional, announcing a token buyback program doesn’t amount to a promise of “essential managerial efforts.” That phrase is a key ingredient of the Howey test, the Supreme Court standard for determining whether an asset counts as an investment contract.
For networks that are not yet functional, however, staff said a buyback announcement could cross the line if the issuer pitches it as generating yield or returns for holders. The FAQs also said that after a network is functional, promises to maintain, upgrade, or grow the system would not satisfy Howey. Promoting a system’s current uses, or making vague aspirational statements that don’t emphasize profit, likely wouldn’t either.
Gabriel Shapiro, a corporate securities attorney at MetaLeX Labs and former general counsel at Delphi Labs, said the guidance “goes further than I expected.” In his reading, teams can keep building, support token prices with buybacks, and enjoy many benefits of a public investment without giving holders shareholder-style rights. He wrote that SEC staff “opened a loophole” in a regulatory regime whose whole point was to prevent drafting around economic reality. The broader trend, he argued, isn’t tokenized equity but the drive to “get all the benefits of equity with none of the burdens.”
The FAQs carry no legal force. They build on the SEC’s March interpretive release and its Regulation Crypto Assets proposal, which would let projects sell tokens without full registration. They also follow the agency’s new innovation exemption for tokenized stocks, introduced after the Clarity Act failed in the Senate. SEC Chair Paul Atkins had signaled in July that the agency would act if the bill faltered, and the CFTC issued a similar warning in August.
Shapiro cautioned that the guidance is staff-level only. “A private plaintiff or a future SEC could have other ideas,” he said.
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