In a speech today during a crypto conference in San Francisco, a top Securities and Exchange Commission official expressed his view that, at this point, sales of Ether are not securities transactions. Speaking from prepared remarks, Bill Hinman, Director of the Division of Corporation Finance said: “Based on my understanding of the present state of Ether, the Ethereum network, and its decentralized structure, current offers and sales of Ether are not securities transactions.” Hinman also said that, in his view, Bitcoin is not a security either, reinforcing what SEC Chairman, Jay Clayton, stated in his remarks recently on CNBC.  The main topic of Hinman’s speech focused on whether a digital asset offered as a security can, over time, become something other than a security. To this point, Hinman noted that where a digital asset is “sold only to be used to purchase a good or service available through the network on which it was created . . . the answer is a qualified ‘yes.’” Hinman also discussed some of the factors to consider in assessing whether a digital asset is offered as an investment contract in a securities transaction. In particular, Hinman focused on the third prong of Howey and whether the efforts of an identifiable third party – be it a person, entity or coordinated group of actors – drives the expectation of a return. Also noteworthy was Hinman’s comment that the SEC is “happy to help promoters and their counsel work through . . . issues . . . [and] . . . stand prepared to provide more formal interpretive or no-action guidance about the proper characterization of a digital asset in a proposed use.” Finally, in a footnote included in the written version of the remarks, Hinman, referencing SAFTs, stated his view that a token once offered in a security offering can, depending on circumstances, later be offered in a non-securities transaction.

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