Former SEC Chair: A Security Today May Not Be a Security Tomorrow

Jay Clayton agrees with Gary Gensler that “securities cover a very wide swathe of crypto,” but says courts are not the place to resolve asset classifications

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Former SEC Chairman Jay Clayton believes crypto tokens that might be deemed securities today might not be in the future. 

Clayton’s comments during a Friday interview on CNBC come as the SEC and CFTC fight for jurisdiction over crypto assets, and perhaps further mystifies industry folk seeking clarity on whether various tokens are securities or commodities. 

Current SEC Chairman Gary Gensler has said in interviews in the past year that while he views bitcoin as a commodity, most other crypto assets are securities.

“I do agree with Gary [Gensler] that securities cover a very wide swathe of crypto,” Clayton told CNBC Friday. 

When asked if ether (ETH) is a security or a commodity during a House Financial Services Committee meeting earlier this week, Gensler did not give a clear answer

CNBC asked Clayton the same question, to which he responded: “Things can go from being a security to not a security.”

The Howey Test — named for the 1946 Supreme Court case SEC v. W.J. Howey Co. — is used to determine what is deemed an “investment contract,” therefore falling under securities laws.

In a 2018 speech by William Hinman, then-director of the SEC’s division of corporation finance, he said looking at the way a crypto asset is sold is the best way to tell whether it is a security or not, noting that “current offers and sales of Ether are not securities transactions.”

Clayton seemed to agree with Hinman’s stance, saying in the Friday interview that Broadway tickets received for investing in a yet-to-be-produced play, for example, would be securities. Tickets bought years later to see that show, however, would not be. 

“[Ether] has many more hallmarks of just being a ticket than it does being a means to raise money,” he added.

The CFTC — in an action filed last month alleging that Binance and its CEO broke trading and derivatives laws — labeled bitcoin, ether and litecoin as commodities

The SEC is still tied up in a years-long lawsuit with Ripple Labs about whether XRP is a security. The regulator has more recently targeted Coinbase, for example, via a Wells notice related to potential alleged securities violations. 

Coinbase claimed in a blog post at the time that the company “doesn’t list securities.” 

“The courts are not an efficient place to resolve classifications around securities, commodities and the like,” Clayton argued. 

“Right now, we’re not in a spot where … the technology is going to come into the traditional financial system in any kind of smooth way,” he added later in the interview. “That’s what we should focus on.”


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