I was talking to a crypto-savvy SEC Commissioner the other day about my current obsession, which is that using the exemption under Regulation A is the way to address the constant complaint that “The Commission tells us to come in and register but we can’t make the registration process work for crypto.”
As I mentioned before, this means taking a policy-oriented approach to Rule 261.
But, says my Commissioner friend, Reg A isn’t the solution. There is no liquidity for Reg A securities, despite the fact that they are technically free-trading. This, of course, is because Reg A securities, unlike 34 Act registered securities listed on an exchange, are not “covered securities” and thus can only be easily traded at the retail level if state blue sky rules are complied with.
The obvious answer to that is to follow the recommendations made by various market commentators over the years and provide that securities whose issuer provides 15c2-11-style “sufficient current information” are covered securities. Which could then be traded on ATSs, even to retail investors.
I would argue that we don’t need to wait for that issue to be solved in order to move forward on using Reg A for crypto issuance (and in future blog posts CrowdCheck will be elaborating why Reg A is a good solution). Let’s imagine a crypto project uses Reg A (probably with a Reg D 506(c) concurrent offering) to make an offering. The offering gets qualified before the securities become “covered”. What then?
- In some cases, the project will have developed to the point that the instruments sold are no longer development stage securities but are a fungible commodity and can be released into the wild to trade as something other than securities.
- Like the Reg D securities issued in a concurrent offering, they can be sold to accredited investors under Section 4(a)(7) (conditions apply) on an ATS.
- Sales could take place on an ATS to retail investors in and from a limited set of states.
- Sales could take place through a “bulletin board” through which individual investors contact each other (such technology services might be made more attractive with new rulemaking).
- Sales could be made to investors outside the United States in reliance on Regulation S (again, conditions apply).
- Investors could sit on their hands and wait.
Maybe not ideal but my point is that Reg A securities are not completely illiquid even now and we can move forward on one part of the solution (and CrowdCheck stands ready to do that) without waiting for the other pieces to be in place.