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SEC Corporation Finance staff said token buybacks and continued development of already functional crypto networks generally may not count as the essential managerial efforts central to the Howey test. The staff also said staking receipt tokens may qualify as digital tools or digital commodities, depending on their structure.
Why it matters
The FAQs clarify the staff’s March 17 crypto guidance and offer a framework for assessing activities tied to functioning networks. Maintenance, improvements and network development are treated differently from efforts that remain essential to making a system functional.
Market impact
The distinction is important for token buyback programs: buybacks promoted as generating returns before a system becomes functional may still count as essential managerial efforts. The FAQs reflect staff views and have no legal force or effect, so they do not constitute binding law.
Frequently asked questions
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When may token buybacks avoid counting as essential managerial efforts?
For already functional crypto systems, non-security token buybacks generally may not count as essential managerial efforts under the Howey test.
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When could token buybacks count as essential managerial efforts?
Buybacks promoted as generating returns before a system becomes functional may count as essential managerial efforts.
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How does continued network development factor into the Howey test?
For an already functional system, continued maintenance, improvements and network development generally may not constitute essential managerial efforts.
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How might staking receipt tokens be classified?
SEC staff said staking receipt tokens may qualify as digital tools or digital commodities, depending on their structure.
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Are the SEC staff FAQs legally binding?
No. The FAQs represent staff views and have no legal force or effect.
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