SEC Chairman Says ETH Token Not a Security

Wilfred Michael 

Wilfred Michael

News reporter

12 March 2019,
SEC Chairman Says ETH Token Not a Security

Jay Clayton, Chairman of the U.S Securities and Exchanges Commission (SEC), has comprehensively ended as debate any claims that Ether (ETH), the native token of the Ethereum blockchain is a security under U.S laws.

Clayton issued the clarification via a response letter first published by CoinCenter today March 12. The letter was an official reply to an inquiry sent to the SEC Chair regarding comments made in June 2018 by Director of the SEC’s Division of Corporate Finance, William Hinman.

Hinman said then that “current offers and sales of Ether are not securities transactions" and the inquiry sought to confirm whether those thoughts were solely that of the official or represent the general position of the U.S SEC.

In the latest update, Clayton confirmed that he agrees with “statements concerning digital tokens in Director Hinman's June 2018 speech.”

Explaining the reason for adopting such a stance, the SEC Chair pinpointed in line with an earlier statement that there are a few cases where a digital token first exists as a ‘security’ or investment contract and then after some time such tokens no longer meet that definition.

At this new stage when the token no longer fits into the Howey Test definition of security, he explained that “purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts.”

The comments of the SEC Chair is in line with previous enforcement actions against ICOs, the Commission often mentioned in the numerous cases that a crypto token qualifies as security if it's initial buyers expected profits from the effort made by another person or group that issued the token.

As it were, the ETH token no longer fits that description because the project thrives off the efforts made by decentralized blockchain development teams around the globe.

We have updated this post to reflect our new understanding of the comments made by the SEC Chair. We sincerely apologize for misinterpreting the earlier message. Find the new report here.


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