A Safer Harbor: Improving Hester Peirce's Proposal for Regulating Token Sales

In February, Commissioner Hester Peirce proposed a new safe harbor which, if passed into a formal rule, would radically change the legal terrain for sellers of crypto tokens in the United States.

This article addresses some critiques and point of views in response to the recent Safe Harbor Proposal from Commissioner Hester Peirce.

Commissioner Peirce's safe harbor proposal has inspired a discussion of alternatives and a variety of practical considerations that would be involved in implementing the proposal.

The safe harbor proposal should be viewed in the context of the ICO boom and bust that left retail customers shouldering billions in losses.

The safe harbor proposal touches on all aspects of the crypto-issuance ecosystem at once, but does not drill down into the functionality of the instruments, implications of its new features and nitty-gritty details about its actual workability.

We believe the safe harbor proposal should concentrate more on key public policy concerns such as registration, disclosure and markets trading.

The safe harbor proposal exempts tokens from being classified as securities during the precise time that such tokens are in fact securities; in most issuances, the tokens sold have been non-functional "Vaporware," or semi-functional at best, targeted to retail investors.

Making a few token friendly tweaks to Reg A+, especially the transfer agent requirement, would provide a viable alternative to registration for token issuers and would not require the creation of a new bespoke rule for token issuers, or any significant expansion of SEC authority.

Many think the timing of the safe harbor proposal is problematic considering that Feb. 19 is the court hearing on the temporary restraining order in SEC v. Telegram Group Inc. This is a key case related to the issuance of crypto tokens for investment purposes where the SEC is challenging the token sale as an illegal offering in violation of the registration provisions of the federal securities laws.

Recently, Gabriel Shapiro, a member of Hardcore Crypto Lawyers, wrote a open letter to Commissioner Peirce suggesting comprehensive modifications to the proposal to further align it with prevailing U.S. securities doctrine and policy.