The U.S. Securities and Exchange Commission's Division of Corporation Finance has clarified that token buyback announcements from projects on functional crypto networks do not amount to promises of "essential managerial efforts" under the Howey test—the Supreme Court standard for determining whether an arrangement is an investment contract, and therefore a security.

In new FAQs published Friday, the division stated that once a crypto system is functional, announcing a token buyback program does not constitute the kind of managerial commitment that would satisfy Howey. The guidance adds that, for operational networks, pledges to maintain, upgrade, or grow the system would not meet the standard either. Promoting a system's current uses, or making vague aspirational statements that do not tout profit, would likewise likely fall outside it. That distinction puts a project's development status at the center of the legal analysis—identical buyback announcements can land on different sides of the line depending on whether the underlying network actually works.

The analysis changes for networks that are not yet functional. According to the staff, a buyback announcement in that context could cross the line if the issuer pitches it as a way to generate yield or returns for token holders.

The FAQs carry no legal force, but they 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 agency's newly unveiled innovation exemption for tokenized stocks, introduced after the Clarity Act failed in the Senate. SEC Chair Paul Atkins had signaled in July that the agency would step in if the bill faltered, and the Commodity Futures Trading Commission issued a similar warning in August. Read as a sequence, the moves amount to the agency following through on that pledge with its own rulemaking tools—staff guidance, interpretive releases, and proposals—after the legislative route failed in the Senate.

Gabriel Shapiro, a corporate securities attorney at MetaLeX Labs and former general counsel at Delphi Labs, said the guidance goes a long way. "The securities laws are starting to look opt-in now, at least as applied by the SEC to crypto," he wrote on X. The buyback section, he added, "goes further than I expected."

In Shapiro's reading, development teams can keep building, prop up token prices with buybacks, and enjoy many of the perks of a public investment without granting holders shareholder-style rights. "They have opened a loophole in a regulatory regime whose whole point was supposed to be that you couldn't draft your way around economic reality," he wrote. The larger trend in crypto, he argued, is not tokenized equity but the drive to "get all the benefits of equity with none of the burdens."

Shapiro also cautioned that the guidance is not set in stone. The crypto industry has largely embraced regulators as its path forward, though agency rules are easier to unwind than legislation. Shapiro made the same point: "A private plaintiff or a future SEC could have other ideas." The open question is durability: whether the pending "Regulation Crypto Assets" proposal is ultimately finalized, and whether—as Shapiro cautioned—private plaintiffs or a future SEC read the law differently.

Source: Decrypt