SEC’s ‘Regulation Crypto Assets’ Provides New Offering Paths but Could Create Private Litigation Risks

Key Points

• The SEC’s recent proposal would create both startup and fundraising exemptions for certain investment contract offerings involving crypto assets.
• The proposed safe harbor would clarify when investment contract status ends for the purposes of the definition of a “security” under federal securities law.
• However, the required transition report could make room for private litigations.

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Two Offering Pathways and a Proposed Safe Harbor

The Securities and Exchange Commission’s (SEC’s) newly proposed Regulation Crypto Assets would provide a framework for covered investment contracts involving a crypto asset that is not itself a security.

If adopted, the regulation would provide for two fundraising pathways:

• A one-time startup exemption for up to $5 million aggregate of covered transactions over a period of up to four years for the same or a substantially similar crypto asset.
• A fundraising exemption that would permit Tier 1 offerings of up to $20 million and Tier 2 offerings of up to $75 million in a 12-month period.

However, the August 18, 2026, proposal may also open the door to private litigation relating to issuer promises and disclosures.

The proposal contemplates a safe harbor that would be available to issuers whether or not they utilize a fundraising exemption. The safe harbor would apply after an issuer has completed or permanently stopped the essential managerial work it had promised, is not making and does not intend to make new promises to perform such work, and has filed a required transition report explaining why and certifying that those conditions were met.