U.S. Securities and Exchange Commission issues interpretive release clarifying when crypto assets are investment contracts under Howey and when they cease to be

The U.S. Securities and Exchange Commission published an interpretive release on the application of the federal securities laws to certain types of crypto assets and transactions, setting out a taxonomy distinguishing crypto assets that are securities from those that are not and explaining how the Howey “investment contract” analysis applies in the crypto context. The release states that a crypto asset that is not itself a security may nonetheless be subject to an investment contract when it is accompanied by representations or promises to undertake essential managerial efforts that satisfy the Howey test. To support that analysis, the interpretive release describes considerations relevant to the representations or promises that may form an investment contract, including the source of the representations, the medium used to communicate them, and their level of detail. It also addresses when an investment contract terminates, either when the promised essential managerial efforts are fulfilled or when they are not satisfied, in both cases such that investors are no longer expecting profits derived from the efforts of others, and it notes that specific termination provisions agreed by the parties would not be superseded by the Commission’s interpretation.