SEC staff outlines when token buybacks may affect security status

SEC Division of Corporation Finance staff said token buyback announcements generally do not amount to promises of "essential managerial efforts" once a crypto network is functional, according to a set of FAQs published Friday. The staff reiterated that the Howey test governs whether an arrangement is an investment contract and therefore a security. For networks that are not yet functional, the staff said a buyback announcement could raise securities concerns if an issuer frames it as generating yield or returns for token holders. For functional networks, the staff said statements pledging to maintain, upgrade, or grow the network would not satisfy Howey. It added that promoting a system's current uses, as well as vague aspirational statements that do not promote profit, would also likely fall short of the test. The staff emphasized the FAQs have no legal force, and a future SEC could change course. Gabriel Shapiro, a corporate securities attorney at MetaLeX Labs and former general counsel at Delphi Labs, said the guidance amounts to a loophole, even as he argued it meaningfully advances clarity. Shapiro wrote that securities laws are starting to look opt-in when applied to crypto, and said the buyback discussion went further than he expected. He argued teams could build networks and support token prices through buybacks without granting holders shareholder-style rights, calling that dynamic a way to draft around economic reality and a broader effort to capture the benefits of equity without its burdens. The FAQs build on the SEC's March interpretive release and its Regulation Crypto Assets proposal, which would allow projects to sell tokens without full registration. They also follow the SEC's new innovation exemption for tokenized stocks, unveiled after the Clarity Act failed in the Senate. SEC Chair Paul Atkins signaled in July the agency would act if the bill failed, and the CFTC issued a similar warning in August. Shapiro cautioned that private plaintiffs or a future SEC could reach different conclusions.