SEC proposes rules for crypto raises up to $75M

The Securities and Exchange Commission proposed a package of rules, Regulation Crypto Assets, to create specific fundraising paths for U.S. crypto projects and a way to end a token’s status as an investment contract after the issuer completes or permanently stops promised work.

The proposal sets three fundraising paths. A startup exemption would allow up to $5 million to be raised over a single period as long as four years. Two larger tiers cover offerings of up to $20 million (Tier 1) and up to $75 million (Tier 2) in 12-month periods. Tier 2 would require audited financial statements; Tier 1 may use unaudited financials.

Tier 1 and Tier 2 issuers must be organized under U.S. law, meet domestic control and operations tests, hold a majority of assets in the United States, and have a majority of senior managers who are U.S. citizens or residents. Those offerings must be registered with the SEC using a standardized statement, Form 1-CRYPTO, filed on EDGAR. Sales may begin only after the SEC qualifies the offering statement.

The proposal limits retail purchases by non-accredited investors to 10% of annual income or net worth, using the higher figure. Accredited investors would not face SEC-specific caps. Federal law would preempt state registration and qualification requirements for eligible primary sales and certain secondary trades while the issuer’s federal filings remain current. State securities authorities would retain powers to pursue fraud or misconduct.

Regulation Crypto Assets treats the financing agreement between buyers and a founding team as the covered investment contract. That contract is a security while investor expectations depend on the issuer’s managerial efforts to build the network and make the token useful. Rule 400 would create a safe harbor that lets an issuer certify publicly that it has completed or permanently ceased all essential managerial efforts tied to the offering, allowing later token transfers to be treated apart from the original securities transaction.

An issuer seeking safe-harbor treatment must file Form TR on EDGAR, certify that it has fulfilled or permanently stopped the essential work it promised, and provide a supporting analysis sufficient for a reasonable investor to understand the claim. The SEC would retain the authority to challenge filings that misstate what the team has done or continues to promise. Reaching the four-year limit under the startup exemption does not by itself qualify a project for the safe harbor if substantial managerial promises remain.

The proposal also defines disclosure and ongoing reporting requirements. Form 1-CRYPTO must describe the issuer’s commitments, token supply and allocation, governance, source-code security, conflicts of interest, the build plan, risks, and financial information showing funds raised, expenditures, and runway. Tier 1 and Tier 2 issuers would file three recurring reports while the investment contract exists: Form 1-KC (annual report within 120 days of fiscal year-end), Form 1-SC (semiannual report within 90 days), and Form 1-UC (current events within four business days).

The startup exemption is available to an individual, informal group, or entity and requires a notice of reliance on Form NOR plus free public disclosures on the project’s website at the time of filing. Projects using the startup path must provide annual material updates within 30 days of each year-end and file Form TR at the end of the period stating whether the investment contract has ended or describing ongoing plans if the project remains unfinished.

The proposal builds on the SEC’s earlier interpretation that a crypto asset can participate in a securities transaction without retaining that status permanently. The package entered the Federal Register on Aug. 21 and carries a public comment period ending Oct. 20. The commission must consider comments and vote on a final rule before the new exemptions can be used. The proposal notes ongoing regulatory activity by other U.S. agencies in related markets and says separate legal analysis is required where tokens function as other types of securities or where private litigation raises different questions.