The SEC Just Proposed Letting a Crypto Project Raise $5 Million With No Financial Statements at All — A Coffee Shop Raising the Same $5 Million Has to File Them

The Securities and Exchange Commission (SEC) has proposed a new way for crypto projects to raise as much as $5 million from the public without providing investors a single financial statement.

There would be no per-investor limit. Non-accredited investors could participate. General solicitation would be allowed. The securities generally could be resold without the one-year restriction that applies to securities sold under Regulation Crowdfunding. The issuer would not need to conduct the offering through a registered crowdfunding platform.

This proposal raises an uncomfortable question: How much protection does an antifraud law provide when many of the mechanisms designed to identify problems before investors hand over their money have been removed?

The proposal is called Regulation Crypto Assets. The SEC issued it on Aug. 18, it was published in the Federal Register on Aug. 21, and comments are due Oct. 20. It carries File No. S7-2026-27. Nothing in it is currently in force, and the Commission would have to vote again to adopt a final rule.

The “Startup Exemption”

The most consequential part may be what the SEC calls its “startup exemption.” It would exempt offerings of covered crypto investment contracts from Securities Act registration for up to $5 million during a four-year period.