The SEC’s Division of Corporation Finance has told crypto projects that announcing buybacks on a working network won’t trigger securities law. The guidance, published as FAQs on Friday, says buyback announcements on functional networks don’t count as promises of “essential managerial efforts” under the Howey test. That is the agency’s clearest signal yet that some crypto projects can operate publicly without registering as securities.
The catch is that the guidance carries no legal force. It is staff guidance, which a future SEC could reverse. The SEC’s own chair, Paul Atkins, signaled in July that the agency would step in if the Clarity Act faltered. And the CFTC issued a similar warning in August.
The Howey Test and the Buyback Question
The Howey test is the standard used to determine whether something counts as a security. To pass it, an investment must involve:
- An investment of money
- In a common enterprise
- With the expectation of profits
- Derived from the managerial efforts of others
The SEC’s guidance says that after a network is functional, promises to maintain, upgrade or grow it wouldn’t satisfy Howey. Promoting a system’s current uses or making vague aspirational statements that don’t tout profit likely wouldn’t either.
For networks that aren’t yet functional, pitching buybacks as a source of yield or returns could still trigger securities laws.
Gabriel Shapiro’s Warning
Gabriel Shapiro, a corporate securities attorney at MetaLeX Labs and former general counsel at Delphi Labs, called the guidance a “loophole.” He wrote on X that “the securities laws are starting to look opt-in now, at least as applied by the SEC to crypto.”
Shapiro added that the buyback section “goes further than I expected.” He also noted that “A private plaintiff or a future SEC could have other ideas.”
Shapiro’s concern is that the guidance creates a path for crypto projects to operate publicly without registering as securities, but that path could close if a future SEC changes course. The guidance is staff guidance, not regulation, so it lacks legal force.
The Road to These FAQs
The FAQs follow the SEC’s March interpretive release and its Regulation Crypto Assets proposal. They also follow the agency’s new innovation exemption for tokenized stocks, unveiled after the Clarity Act failed in the Senate.
The Clarity Act, which would have clarified how securities laws apply to digital assets, died in the Senate. The SEC’s response has been to push forward with its own regulatory proposals, including the innovation exemption for tokenized stocks.
What the Guidance Actually Says
The key takeaway is that functional networks can announce buybacks without crossing the Howey line. Non-functional networks are still at risk.
The FAQs are notable for what they confirm. They confirm that a working network with a buyback plan can exist without triggering securities law. That is a relief for projects that want to signal to investors that they are holding tokens back rather than selling them immediately.
The guidance also confirms that the SEC is treating functional networks differently from networks that are still being built. That distinction matters for how projects structure their disclosures and investor communications.
The Caveat Is Real
Shapiro’s warning about a private plaintiff or a future SEC having other ideas is worth keeping in mind. The guidance is staff guidance, not regulation, so it can be changed by a future SEC.
The SEC’s own chair, Paul Atkins, has signaled that the agency will step in if the Clarity Act faltered. And the CFTC issued a similar warning in August. Those signals suggest that the SEC is watching the space closely, even as it offers this guidance.
The guidance is a step forward for crypto projects that want to operate more openly. It gives them a clearer path to announce buybacks without triggering securities law, so long as the network works.
But the caveat is real. A future SEC could change the guidance. And a private plaintiff could bring a lawsuit based on a different reading of the law.
The outcome of any such lawsuit is unresolved. Charges could be brought, dismissed, or denied depending on how courts interpret the law. The guidance itself does not settle that question.
The SEC’s Division of Corporation Finance has told crypto projects that announcing buybacks on a working network won’t trigger securities law. The guidance is staff guidance, which a future SEC could reverse. That is the state of play right now.
Where the paper stands
The paper backs the small crypto projects against the SEC and the big firms, and is against any guidance or rulebook that treats these projects as securities without a clear case of harm. The SEC’s latest FAQs are staff guidance, not regulation, and they leave room for a future SEC to change course. The paper wants the SEC to stay narrow and targeted in its approach, not to write a rulebook that treats crypto projects as securities without showing a clear case of harm.
The guidance is a step forward for crypto projects that want to operate more openly, but the caveat is real. A future SEC could change the guidance. And a private plaintiff could bring a lawsuit based on a different reading of the law. The paper watches these developments closely, siding with the small project against the SEC when the SEC overreaches.
The reader should watch for any sign that the SEC is expanding its reach beyond cases where a project directly harms people or the environment. When the SEC moves toward broad guidance, the paper will oppose it.
Key Facts Box
- Guidance published as FAQs on Friday
- SEC Chair Paul Atkins signaled in July the agency would step in if the Clarity Act faltered
- CFTC issued a similar warning in August
- Clarity Act died in the Senate
- Guidance is staff guidance, not regulation
The Four Howey Factors
- Investment of money
- In a common enterprise
- With the expectation of profits
- Derived from the managerial efforts of others
Source material: “SEC Staff Says Token Buybacks Don't Make Crypto a Security—If the Network Works,” Decrypt.
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