Securities & SEC – Page 5

Blockchain+ Bi-Weekly; Highlights of the Last Two Weeks in Web3 Law: April 10, 2025

The past two weeks have been relatively quiet, with stablecoins being the most prominent focus on the regulatory front. Stablecoin legislation now appears likely this year, with a bill to regulate stablecoins advancing out of the key House Financial Services Committee — a step toward what would be the first crypto-specific federal legislation enacted in the United States. The SEC also issued guidance clarifying that certain “covered stablecoins” are not securities under existing law. Unresolved are several key questions — including whether regulatory authority over stablecoins will lie solely with the federal government or continue to be shared with the states and whether interest-bearing stablecoins should be treated as stablecoins at all.
These developments and a few other brief notes are discussed below.
SEC Clarifies That Certain Stablecoins Are Not Securities: April 4, 2025
Background: While Congress moves toward a legislative framework for stablecoins (discussed below), the SEC has issued limited guidance addressing how existing securities laws apply to certain types of stablecoins. The SEC’s Division of Corporation Finance’s Statement on Stablecoins provides that the offer and sale of certain “covered stablecoins” do not consist of the offer and sale of securities and issuers of the same “do not need to register . . . with the Commission under the Securities Act or fall within one of the Securities Act’s exemptions from registration.”
Analysis: Under the guidance, “covered stablecoins” are defined as stablecoins that are marketed for the purposes of making payments, are exchangeable for the reference currency on a one-for-one basis and are backed by a reserve of low-risk, liquid assets. There are at least two big takeaways from this guidance. First, interest-bearing stablecoins could turn a consumer product into an investment product under the Howey and Reves tests. Second, while not explicitly addressed, the statement implies that stablecoin issuers might not need to register as investment companies under the Investment Company Act of 1940 as long as the assets backing the stablecoin are USD and other assets that are “considered low risk and readily liquid.” This view is consistent with pending legislation that would prohibit interest payments on stablecoins to distinguish them from investment products. Notably, the guidance does not address stablecoins pegged to anything other than the U.S. dollar.
Stablecoin Bill Passes House Financial Services Committee: April 2, 2025
Background: The House Financial Services Committee included H.R. 2392, the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act of 2025, in a recent markup session. Committee Chair French Hill stated he expected “our discussion today will be passionate,” and his expectations were met during a marathon 10-hour debate, particularly regarding various proposed amendments to prohibit federal officials from “sponsoring, issuing, promoting or licensing” stablecoins in response to World Liberty Financial stating its intent to issue a stablecoin for its platform. The bill ultimately ended up passing through committee on a 32-17 vote, demonstrating a fairly strong bipartisan vote, though further changes can be expected before the bill reaches the House floor.
Analysis: Stablecoin legislation in 2025 now appears likely, but the two major questions remain: whether authority will be split between state and federal authorities, and whether stablecoins should be permitted to bear interest. Some argue that allowing interest bearing stablecoins will enhance utility, while others argue that it could undermine the existing banking system. An anti-central bank digital currency (CBDC) bill also advanced through the Committee, along party lines, though that bill is of limited practical importance, as any CBDC would likely require express Congressional approval.
SEC v. Ripple Settlement Progresses: March 25, 2025
Background: In our last Bi-Weekly update, we noted the then-available details regarding developments in the SEC v. Ripple case. Since then, further news was released that Ripple will also not be appealing the decision in its case against the SEC. The SEC will also ask the district court to lift the standard SEC injunction, but there is no guarantee that it will be approved.
Analysis: The settlement was finalized as both parties agreed to drop their respective appeals in the case, which dates back to 2020. Ripple agreed to pay a fine of $50 million, reduced from the original $125 million, in exchange for the SEC requesting the lifting of injunction requiring Ripple to register any future securities. The settlement signals the conclusion of one of the most anticipated crypto litigations. As discussed in the previous update, the settlement aligns with the general outlook of the SEC dropping non-fraud related crypto cases. On the other hand, Ripple remaining liable for a $50 million fine related to its institutional token sales leaves a door open for the SEC to argue that sales of tokens for the purpose of raising capital purposes might still be treated as securities offerings. While the settlement is a welcome resolution, the absence of a final judicial opinion leaves no precedent or legal guidance for future token offerings. With this litigation soon behind us, the industry can now focus on securing clearer regulatory guidance on digital assets.
Briefly Noted:
Digital Chamber Conference: Remarks by Commissioner Peirce: The Digital Chamber of Commerce held its annual Blockchain Summit on March 26th, with the Polsinelli BitBlog team actively participating. We were encouraged by the strong demonstration of bipartisan support for the industry — even in these highly partisan times — due in no small part to the efforts of the Chamber under Perianne Boring and now under the energetic new leadership of Coby Carbone, whom we had the pleasure of congratulating in person. Of particular note at the conference was SEC Commissioner Hester Peirce’s important address on the path ahead for building common-sense digital asset regulations.
SEC Chair Confirmation Hearing: Paul Atkins had his Senate confirmation hearing last week, but there wasn’t anything unexpected discussed. He has a lot of work ahead of him and will get plenty of help from the industry in the various upcoming roundtables. That said, it appears he may have already gotten a head start, with two of the three remaining SEC commissioners (Uyeda and Peirce) being former staffers of his.
Securities Clarity Act Reintroduced: House Majority Whip Tom Emmer has reintroduced his Securities Clarity Act, which specifies that any asset sold as the object of an investment contract is distinct from the securities offering it was originally a part of. This definition is technology-neutral and applies to all assets sold or offered that would only be considered a “security” because of their inclusion in an investment contract. With the unclear status of the market structure bill, this would be a solid alternative along with SEC rulemaking and no-action letters.
FDIC Removes Crypto Limits: The FDIC has released a statement that it will no longer require supervised institutions that “engage in permissible crypto-related activities” to receive prior agency approval. Another big win for getting digital asset companies access to traditional banking.
Kentucky Self-Custody Law: Kentucky recently enacted a law that passed unanimously on a bipartisan vote and guarantees individuals the right to hold and manage their crypto in self-hosted wallets. Hopefully, we see similar protections at the federal level soon.
State Staking-as-a-Service Lawsuits Dropped: Fresh off the SEC clarifying its view that pooled PoW mining operations are not generally securities offerings, South Carolina, Kentucky and Vermont have all dropped their lawsuits against Coinbase alleging that its staking services qualified as securities.
Circle Files to Go Public: USDC stablecoin issuer Circle has filed their S-1 to go public, aiming for a $5 billion valuation. Considering they had $1.68 billion in revenue and reserve income in 2024, that seems reasonable, even in less than optimal market conditions. Interestingly, the IPO filings also revealed Coinbase’s acquisition of a stake in Circle. This is just the first of the crypto companies going public in the upcoming months/years, if tariffs don’t derail those plans.
Defending the Fourth Amendment: It is worth reading this amicus brief from the DeFi Education Fund in a case regarding the Constitution’s Fourth Amendment protection against illegal search and seizure, specifically challenging the government’s subpoena powers over digital asset transaction records held by centralized exchanges.
Acting SEC Chair Asks for Guidance Assessment: Acting SEC Chair Uyeda has asked the staff to reassess certain guidance, which includes the Framework for “Investment Contract” Analysis of Digital Assets. This document was based on a 2018 speech by former SEC Bill Hinman. It appears the goal would be to clean the slate of past guidance muddying the waters in areas the current administration wants to change, including the prior approach to regulating digital assets.
Conclusion:
With the SEC announcing that certain “covered stablecoins” are not securities and a stablecoin bill advancing through the House Financial Services Committee, stablecoins were the most active area of regulatory development over the past two weeks. Ripple’s settlement with the SEC marks the close of one of the most closely watched crypto litigations to date — though it leaves much work ahead in the pursuit of clearer legal frameworks for digital assets. Other notable updates include the SEC Chair’s confirmation hearing, the reintroduction of the Securities Clarity Act, the FDIC’s removal of prior approval requirements for crypto-related activities, Kentucky’s new self-custody law, and Circle going public.

SEC Commissioner Crenshaw Critiques Stable Coin Analysis: Understates the Risks

On April 4, US Securities and Exchange Commission (SEC) Commissioner Caroline A. Crenshaw, the sole Democrat serving as a Commissioner, issued a statement critiquing the Division of Corporation Finance’s analysis in its conclusion that stablecoins are not securities.

The Division’s statement attempted to provide clarity specifically on certain stablecoins, deemed “Covered Stablecoins.” The Division defined Covered Stablecoins as stablecoins designed (1) to maintain a stable value relative to the US Dollar (USD) on a one-for-one basis, (2) to be redeemed for USD on a one-to-one basis, and (3) to be backed by assets held in a reserve that are considered low-risk and readily liquid with a USD-value that meets or exceeds the redemption value of the stablecoins in circulation.
Commissioner Crenshaw’s statement argues that the Division’s analysis severely underestimates the risks associated with these coins and misrepresents the relationship between issuers and retail holders, particularly regarding redemption rights and the role of intermediaries. The Commissioner’s critique centers around issuers’ reserves and stablecoin holders’ ability to access them in the case of redemption.
Key Points:

Intermediary Role: The statement highlights that over 90% of USD-stablecoins are distributed to retail purchasers through intermediaries, such as crypto trading platforms, rather than directly from issuers. Holders of stablecoins purchased through intermediaries can only redeem their coins through these intermediaries. Thus, if an intermediary is unable or unwilling to redeem the stablecoin, the holder has no other route of redemption as he cannot recover from the issuer. Intermediaries who can redeem stablecoins are not obligated to redeem them at the par value of $1. They may instead redeem the stablecoins at market value which may mean a smaller payout to the holder. The Division’s analysis fails to consider the significant risks this market structure introduces.
Issuer Reserves: The statement challenges the Division’s claim that issuer reserves are a risk-reducing feature designed to satisfy redemption obligations. Commissioner Crenshaw argues that retail holders have no direct access to these reserves, and the reserves do not guarantee redemption at any price, especially during market stress. Holders, who purchased their stablecoins through an intermediary, have no right to access an issuer’s reserves. Further, the Commissioner notes that “proof of reserves” cannot be relied on due to lack of regulatory oversight and reliability of these reports.
Market Risks: The Commissioner warns of potential “run” scenarios where issuers and intermediaries may be unable to honor redemption requests during market stress. An issuer’s reserve does not necessarily mean the issuer is solvent, in good financial health, or has enough reserves to satisfy unlimited redemption requests at any point in the future. The Commissioner emphasizes that major run events have already occurred for USD-backed stablecoins and that these runs had significant consequences to the broader stablecoin market and traditional banking system.
Legal and Practical Issues: The statement asserts that the Division’s analysis is legally flawed under the Reves test, which enumerates risk-reducing features as one factor against a security determination. The Reves test lists certain risk-reducing features that should be considered, such as collateralization, insurance, and federal regulatory oversight. The Commissioner criticizes the Division’s analysis that an issuer’s reserve is one of these risk-reducing factors under Reves. She also questions the practical applicability of the Division’s criteria for “Covered Stablecoin.” Specifically, the Commissioner is concerned the criteria is fundamentally flawed because it assumes retail coin holders have redemption rights against issuers, when they in fact do not. She emphasizes that it is the intermediaries’ actions, not the issuers’, that matter to the extent that distribution and redemption affect retail market price. The Division failed to address the practices and obligations of these intermediaries.

Commissioner Crenshaw concludes that the Division’s statement does a disservice to USD-stablecoin holders and crypto investors by perpetuating a misleading narrative about the stability and safety of these products, especially by using the term “digital dollar” to describe USD-stablecoins. The Commissioner calls for a more accurate and comprehensive assessment of the risks associated with stablecoins to better protect crypto holders and the public interest.
For our client alert on the Division’s statement concluding Covered Stablecoins are not securities, see here: SEC’s Division of Corporation Finance: Stablecoins Are Not Securities

United States: SEC Appears Poised to Bolster Competition on “Y’all Street”

On 4 April 2025, the Securities and Exchange Commission (SEC) published Texas Stock Exchange’s (TXSE) Form 1 Application and Exhibits, indicating that the SEC intends to grant TXSE’s registration as a national securities exchange. The application provides new details about TXSE, including its proposed listing standards and requirements and the technology to be utilized. TXSE has previously announced that it expects to receive that necessary SEC approval and be listing companies and funds on its exchange by early 2026.
TXSE is establishing a Listings Standards Advisory Council to guide TXSE’s framework for initial and continued listings criteria for issuers. Of significance to exchange-traded fund (ETF) issuers, the TXSE proposes to have certain rules and practices that track those of NYSE Arca, Inc., including core trading hours and a generic listing standard for Rule 6c-11-compliant ETFs. Certain other TXSE rules applicable to the listing and trading of ETF shares more closely track the rules of Cboe BZX Exchange, Inc. In an upcoming client alert, we will provide more information about TXSE’s listing standards for ETFs and how they compare to existing exchanges.
Since TXSE filed its application, NYSE Texas opened, becoming the first securities exchange to operate in Texas, and Nasdaq announced opening a new regional headquarters in Dallas.

Massachusetts Targets Founder’s Share Sale After Move…To New Hampshire

he Massachusetts Court of Appeals has ruled that, in some situations, a former resident of the Commonwealth can be liable for Massachusetts income tax on the sale of shares in a Massachusetts-headquartered company even after becoming a resident of another state. This case highlights a potential risk for business owners who assume that their liability for Massachusetts income taxes will end after they leave the Commonwealth.
The Case
Welch v. Commissioner of Revenue1 was an appeal from a decision by the Massachusetts Appellate Tax Board. Craig Welch founded AcadiaSoft, Inc. in 2003 when he was a Massachusetts resident. He worked for the company extensively and was a Massachusetts resident from the time he founded the business until he left the state for New Hampshire in 2015. From 2003 to 2014, he filed Massachusetts resident income tax returns. He took little salary for some of these years, but expected that his hard work would cause his shares in the company to appreciate. For all years in question, AcadiaSoft was headquartered in Massachusetts and paid Massachusetts corporate income tax.
Within two months of moving to New Hampshire, Mr. Welch entered into an agreement to sell his shares in AcadiaSoft and resigned as an officer and director of the company, contingent upon that sale. Despite Mr. Welch’s move north of the border before the sale, the Appeals Court upheld a prior ruling that Mr. Welch was nonetheless liable for Massachusetts state income tax on the capital gain. State tax law provides nonresidents of Massachusetts remain liable for tax on their “Massachusetts source income.” This includes “income derived from or effectively connected with… any trade or business, including any employment carried on by the taxpayer in the commonwealth, whether or not the nonresident is actively engaged in a trade or business or employment in the commonwealth in the year in which the income is received.”2 A Massachusetts tax regulation adds that income that is effectively connected with a trade or business generally does not include the sale of shares of stock in a C or S corporation if the gain is treated as capital gain for federal purposes. However, this gain can generate Massachusetts source income if it is related to the taxpayer’s compensation for services in Massachusetts.3
The Decision
The Appellate Tax Board concluded – and the Massachusetts Appeals Court agreed – that Mr. Welch’s gain from the sale of the shares was compensatory and effectively connected with his employment at AcadiaSoft. The court reasoned that Mr. Welch obtained the stock soon after founding the company, expected that it would be worth more in the future than when he started the company, and looked forward to a payout for his hard work. All of this made the gain from the sale of the shares Massachusetts source income – for a taxpayer who had already left the state.
Looking Ahead
The court’s opinion mentions the unique circumstances of the case, but it is easy to see how the reasoning could be applied more broadly. It is not unusual for an entrepreneur to expect that appreciation in a company in the future will be the reward for commitment to the business in the present. If such an entrepreneur devotes time and energy to a venture in Massachusetts, Welch suggests that the Commonwealth could tax resulting appreciation when a liquidity event eventually occurs, wherever that entrepreneur may then live.
If you have any questions about the information in this advisory, please contact your usual Goulston & Storrs attorney.
1 Welch v. Commissioner of Revenue, No. 24-P-109 (Mass. App. Ct. April 3, 2025).
2 G.L. c. 62, § 5A(a).
3 830 CMR ֻ§ 62.5A.1(3)(c)(8).

Delaware Adopts Significant DGCL Amendments Related to Control Person Transactions and Stockholder Books and Records Requests

On March 25, 2025, the Delaware governor signed into law amendments to the Delaware General Corporation Law (DGCL), which went into effect upon the governor’s signing. The below overview highlights the most significant changes to these statutes.
Safe Harbors for Control Person Transactions Have Been Expanded, Are Easier to Satisfy, and Limit Liability (Section 144)
Director and Officer Conflicting Interest Transactions (Section 144(a))
Prior to the amendments, the DGCL provided a safe harbor for director and officer conflicting interest transactions, which generally provided that such transactions would not be void or voidable if certain cleansing procedures in the DGCL were followed or the transaction was fair as to the corporation and its stockholders. However, under the prior law, such transactions were still subject to litigation for breach of fiduciary duties, even if the cleansing procedures were followed.
The amendments expand the safe harbor by precluding equitable relief and monetary liability altogether for director and officer conflicting interest transactions if the cleansing procedures are followed or the transaction is shown to be fair as to the corporation and its stockholders. Additionally, the amendments lowered the voting standard for conflicting interest transactions that are submitted to disinterested stockholders for approval to a majority of votes cast standard (from a majority outstanding standard).
Now, conflicting interest transactions between a corporation and one or more of its directors or officers may not be the subject of equitable relief, or give rise to damages liability, against a director or officer of the corporation if the transaction meets either of the following criteria:

It is approved by an informed majority of the disinterested directors[1] then serving on the board or a board committee, provided that if a majority of the directors are not disinterested with respect to the transaction, such transaction shall be approved or recommended for approval by a board committee that consists of two or more disinterested directors with respect to the transaction.
It is approved or ratified by the vote of an informed majority of votes cast by disinterested stockholders.[2]

If neither of these conditions is satisfied, the transaction must be fair as to the corporation and its stockholders for the safe harbor to apply.
Presumption of Disinterest for Directors (Section 144(c))
Prior to the amendments, the DGCL did not expressly define or address what constituted a disinterested director. The Delaware cases that have addressed the issue generally have viewed the satisfaction of independence requirements under applicable stock exchange rules (for public companies) as relevant but not dispositive under Delaware law.
The amendments now establish a presumption that a director of a public company is a disinterested director with respect to transactions to which such director is not a party if the board has determined that such director satisfies the applicable criteria for director independence under the applicable national securities exchange’s rules (including any applicable criteria regarding independence from the controlling stockholders or control group). This presumption may only be rebutted by substantial and particularized facts showing that a director has a material interest[3] in the act or transaction or a material relationship[4] with a party who has a material interest in the act or transaction. This is similar to the independence standard adopted in the Model Business Corporation Act.
Further, the amendments clarify that the mere fact that a director was designated, nominated, or voted for in the election of such director by any person with a material interest in a transaction shall not, of itself, be evidence that a director is not a disinterested director with respect to a transaction to which such director is not a party. This does not represent a major departure from the case law on this issue in Delaware.
Controlling Stockholder Transactions (Sections 144(b)-(c), (e))
Prior to the amendments, the DGCL did not expressly address controlling stockholder transactions. However, Delaware case law generally provided that controlling stockholder transactions, including going private transactions, would be reviewed by a court under the entire fairness standard of review, with the burden to prove entire fairness (as to price and as to process) on the controlling stockholder unless certain cleansing procedures were used to approve the transaction, commonly referred to as the “MFW framework.” If the MFW framework was followed, any claim against the control persons and/or the other directors would be dismissed under the deferential business judgment standard of review unless a plaintiff could show that no rational person could have believed the transaction was favorable to the minority stockholders.
The MFW framework generally provided that a controlling stockholder transaction would be subject to the business judgment standard of review only if a completed transaction was conditioned, ab initio, on approval by a fully informed and uncoerced vote of both (1) an independent, fully functioning board committee of independent directors (i.e., the committee (a) is empowered to freely select its own advisors and reject the transaction and (b) meets its fiduciary duty of care in negotiating a fair price) and (2) a majority of the outstanding voting shares held by disinterested stockholders (i.e., the “majority of the minority” vote).
The amendments add a safe harbor for controlling stockholder[5] transactions[6] and, similar to the expanded safe harbor for director or officer conflicting interest transactions, provide that a controlling stockholder transaction (other than a going private transaction) may not be the subject of equitable relief or give rise to an award of damages against a director, officer, or controlling stockholder if such transaction meets either of the following criteria:

It is approved (or recommended for approval) by an informed majority of the disinterested directors then serving on a board committee (to which the board has expressly delegated the authority to negotiate and to reject such transaction), provided that such committee consists of two or more disinterested directors with respect to the transaction.
It is conditioned, at the time it is submitted to stockholders for approval or ratification, on the approval of or ratification by an informed majority of votes cast by disinterested stockholders, and such transaction is approved or ratified by such vote.

Like director or officer conflicting interest transactions, if neither of these conditions is satisfied, the controlling stockholder transaction must be fair as to the corporation and its stockholders for the safe harbor to apply.
For controlling stockholder transactions that constitute going private transactions,[7] the expanded safe harbor protects the transaction against equitable relief and directors and officers against damages liability if such transaction meets both of the following criteria:

If both of these conditions are not satisfied, the going private transaction must be fair as to the corporation and its stockholders for the safe harbor to apply.
Limitation of Controlling Stockholder Fiduciary Duties (Section 144(c))
Prior to the amendments, a recent Delaware Court of Chancery opinion provided that controlling stockholders owe the fiduciary duty of care to the corporation and its stockholders in certain scenarios.
The amendments now eliminate the monetary liability of a controlling stockholder (including members of a control group) to the corporation or its stockholders for breach of fiduciary duty, except in the following instances:

A breach of the duty of loyalty to the corporation or other stockholders
Acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law
Any transaction from which the controlling stockholder derived an improper personal benefit

Effect on Stockholder Litigation
There is considerable debate about whether these changes will have a material effect on the amount of litigation filed in Delaware related to controlling stockholder transactions. The amendments do overturn some key court precedents related to director independence and the cleansing procedures required in a controlling stockholder transaction for a board to enjoy the presumption of the business judgment rule. How that will affect stockholder plaintiffs’ ability to bring successful derivative litigation challenging those transactions is unclear at this point.
The independence presumption, while useful for directors’ defendants in a lawsuit, may not prove to be much of a departure from prior law because directors have long enjoyed a similar presumption of independence. The legislation does not affect the requirement that directors act in good faith and without gross negligence in approving these transactions. Equally, while the safe harbors in controlling stockholder transactions do take down barriers for cleansing the transaction, it is not yet clear how the removal of those barriers will curtail litigation challenging controlling stockholder transactions.
New Limitations on Stockholder Books and Record Requests (Section 220)
The DGCL provides a statutory right for stockholders to request and inspect a corporation’s books and records for any proper purpose. Prior to the amendments, the DGCL did not define “books and records” and defined “proper purpose” broadly to include a purpose reasonably related to such person’s interest as a stockholder. Delaware courts have interpreted that language broadly, recognizing a long list of proper purposes. Once a proper purpose was established, Delaware case law generally provided that stockholders were entitled to inspect any books and records that were deemed necessary and essential to that proper purpose, which similarly included a long list of materials well beyond the historical understanding of what constituted a corporation’s books and records. Recent decisions in Delaware courts had continued to expand that access. The new amendments overturn many of those recent precedents and restrict the types of records a stockholder may inspect, bringing Delaware’s restrictions closer to, though they’re still not nearly as strict as, the restrictions on stockholder access set forth in the Model Business Corporation Act, which has been adopted by a majority of states in the United States.
The amendments now require that (1) books and records requests or inspections be conducted in good faith, (2) such demands describe with reasonable particularity a purpose reasonably related to such stockholder’s interest as a stockholder for the inspection of the books and records so demanded, and (3) the books and records sought be specifically related to the stockholder’s purpose.
Additionally, the amendments define “books and records” as a specific list of materials that include the following:

Organizational documents (including copies of any agreements or other instruments incorporated by reference therein)
Minutes of all meetings of stockholders, signed written consents evidencing action taken by stockholders without a meeting, and all communications in writing or by electronic means to stockholders, in each case from the three years preceding the date of the demand
Minutes of any board or committee meeting, records of any action of the board or any committee, and materials provided to the board or any committee in connection with actions taken by the board or any committee
Annual financial statements of the corporation for the three years preceding the date of the demand
Certain corporate contracts with stockholders
Director and officer independence questionnaires

Stockholders requesting materials beyond those listed above must show a compelling need for those materials and provide clear and convincing evidence that the materials are necessary and essential to their proper purpose.
The amendments also authorize corporations to impose reasonable restrictions on the confidentiality, use, or distribution of books and records, and may also require, as a condition to producing such materials, that the stockholder agree to incorporate information from the books and records into any complaint filed by or at the direction of the stockholder. The amendments also expressly authorize corporations to redact portions of the books and records that are not related to the stockholder’s proper purpose.
[1] The amendments define “disinterested director” as a director who is not a party to the act or transaction and does not have a material interest in the act or transaction or a material relationship with a person that has a material interest in the act or transaction.
[2] The amendments define “disinterested stockholder” as any stockholder that does not have a material interest in the act or transaction at issue or, if applicable, a material relationship with the controlling stockholder or other member of the control group, or any other person that has a material interest in the act or transaction.
[3] The amendments define “material interest” as an actual or potential benefit, including the avoidance of a detriment, other than one that would devolve on the corporation or the stockholders generally, that (i) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, authorization, or approval of the act or transaction at issue and (ii) in the case of a stockholder or any other person (other than a director), would be material to such stockholder or such other person.
[4] The amendments define “material relationship” as a familial, financial, professional, employment, or other relationship that (i) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, authorization, or approval of the act or transaction at issue and (ii) in the case of a stockholder, would be material to such stockholder.
[5] The amendments define “controlling stockholder” as any person that, together with such person’s affiliates and associates, (i) owns or controls a majority in voting power of the corporation’s outstanding stock entitled to vote in the election of directors; (ii) has the right to cause the election of a majority of the board selected at such person’s discretion (by heads or by voting power); or (iii) has the power (a) functionally equivalent to that of a stockholder that owns or controls a majority in voting power by virtue of ownership or control of at least one-third in voting power of the outstanding stock entitled to vote in the election of directors and (b) to exercise managerial authority over the corporation’s business and affairs.
[6] The amendments define “controlling stockholder transaction” as an act or transaction between the corporation or one or more of its subsidiaries, on the one hand, and a controlling stockholder or a control group, on the other hand, or an act or transaction from which a controlling stockholder or a control group receives a financial or other benefit not shared with the corporation’s stockholders generally.
[7] The amendments define “going private transaction” as (a) a Rule 13e-3 transaction (as defined in 17 CFR § 240.13e-3(a)(3) or any successor statute) for a corporation with a class of equity securities subject to Section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended, or listed on a national securities exchange, and (b) for private corporations, any controlling stockholder transaction, including a merger, recapitalization, share purchase, consolidation, amendment to the certificate of incorporation, tender or exchange offer, conversion, transfer, domestication, or continuance, pursuant to which all or substantially all of the shares of the corporation’s capital stock held by the disinterested stockholders (but not those of the controlling stockholder or control group) are canceled, converted, purchased, or otherwise acquired or cease to be outstanding.

Analysing the Case of Krishna Holdco Ltd v Gowrie Holdings Ltd: Insights into Litigation Privilege Executive Summary

Executive Summary
In a recent judgment, the High Court in Krishna Holdco Ltd v Gowrie Holdings Ltd [2025] EWHC 341 (Ch) has found that litigation privilege did apply to a valuation report prepared for the potential sale of a subsidiary company because that sale was driven by litigation – namely a dispute between two shareholders. The court’s decision underscores the intricacies associated with determining the dominant purpose of a document for the purposes of a claim to litigation privilege, and advocates for an approach which considers the wider context in which a document has been created.
Background
The dispute between Krishna Holdco Limited (Krishna) and Gowrie Holdings Limited (GHL) centers around unfair prejudice proceedings, with Krishna having previously secured a judgment requiring GHL to purchase Krishna’s shares in their jointly owned company, LBNS. The case involves multiple parties, including individual respondents and several corporate entities, with the litigation primarily focusing on the valuation of Krishna’s shares and the associated disclosure of documents.
The conflict goes back to early 2019, when tensions arose between Krishna and GHL over the management and financial stability of LBNS. A critical issue emerged regarding the potential withdrawal of banking facilities by HSBC, allegedly due to Krishna’s refusal to provide certain “Know Your Client” information. In response, GHL considered purchasing LBNS’s trading subsidiaries, GLL and LL, to mitigate the risk posed by the banking issues. This led to the creation of valuation reports concerning GLL and LL by PwC, over which a claim to litigation privilege was subsequently made.[1]
Court Decision
In determining whether the PwC valuation reports were subject to litigation privilege, emphasis was placed on the dominant purpose behind the creation of these documents.
In determining the purpose, the Court considered the context in which the documents were created, including the ongoing litigation and the strategic response to the potential withdrawal of banking facilities. The Court found that the valuation work was not merely a commercial transaction but a subset of a defense strategy in the broader dispute. This approach aligns with recent authority, such as the Director of the Serious Fraud Office v Eurasian Resources Corporation [2017, EWHC 1017 (QB)], where the court emphasized the importance of understanding the factual and commercial context when determining the dominant purpose of document creation.
Accordingly, the court concluded that the reports were produced for privileged purposes, as they were created as part of a broader strategy to address the ongoing dispute between Krishna and GHL.
Implications
In comparison to other recent cases, such as the Eurasian Resources case, the Krishna decision underscores a consistent judicial approach to evaluating the dominant purpose of documents for the purposes of litigation privilege. Both cases illustrate the willingness of the Courts to look beyond the surface of transactions and consider the underlying motivations and strategic considerations behind them.
Accordingly, this decision supports an approach of taking a broader view as to the purpose of a document by taking into account the wider context in which the document was created. As a result, what on the face might appear to be a separate purpose for creating a document may in fact be part of a broader and overall litigation purpose, in which case the “dominant purpose” test for litigation privilege may well be satisfied.
In this respect, the decision also serves as a reminder of the importance of maintaining clear and comprehensive records of the intentions behind document creation, as these records can be pivotal in asserting privilege.
[1] A claim was also made that the reports were subject to “without prejudice” privilege.

SEC Staff Issues Statement on Stablecoins

On April 4, 2025, Staff in the SEC’s Division of Corporation Finance issued a public statement on stablecoins. The statement opines that the offer and sale of “covered stablecoins” do not involve the offer and sale of securities, and that persons involved in minting covered stablecoins do not need to register their offer and sale with the SEC.
The Staff statement provides several characteristics of “covered stablecoins” for the purpose of its analysis, and the issuer of a stablecoin that does not meet these criteria may not be able to rely fully on the statement’s holding. In particular, the statement assumes that a covered stablecoin is backed by a reserve fund of high-quality assets (such as cash, cash equivalents or treasury securities), that the stablecoin is exchangeable one-for-one with a fiat currency (such as the US Dollar), and that the stablecoin is marketed solely for use in commerce, as a means of making payments, for transmitting money, or as a means of storing value, but not as an investment. The Staff further notes that covered stablecoins are typically marketed so as not to impart any governance rights to holders or to reflect any ownership interest in the issuer of the stablecoin. To support its conclusion, the statement also provides a brief analysis of a covered stablecoin under both the Supreme Court’s Howey test for investment contracts and the “family resemblance” test under the Supreme Court’s Reves case. Over the years, the SEC Staff has provided little guidance as to its views on the Reves test, so the Staff statement is interesting in that regard.
While the Staff’s guidance is helpful as a general starting point, it does not delve into several nuances among different varieties of stablecoins that could impact the security analysis. More generally, and as described above, the guidance makes a number of other critical assumptions about the structure of a hypothetical covered stablecoin as well. The guidance seems to imply that algorithmic stablecoins are out of scope and do not meet the criteria for a covered stablecoin, for example. Notably, the Staff guidance does not speak to the status of the reserve fund under the Investment Company Act of 1940, a topic outside the purview of the Division of Corporation Finance. SEC Commissioner Crenshaw also issued a public statement highly critical of the Staff’s analysis. With several bills on stablecoins making their way through Congress, we anticipate that the Staff statement will not be the last word from Washington on stablecoins.

March Brings New Beginnings: SEC Approves Multi-Share Class Exemptive Relief for Private BDCs and Certain Registered Closed-End Funds

Since March 12, 2025, the US Securities and Exchange Commission (SEC) has approved multiple applications for multi-share class exemptive relief for private business development companies (BDCs) and certain registered closed-end funds1 (together with BDCs, the Funds). This relief expressly permits, for the first time, Funds that are continuously privately offered in reliance on a registration exemption under the Securities Act of 1933, such as Rules 506(b) or 506(c) (Rule 506(c)) of Regulation D, to have multiple share classes with varying sales loads, asset-based service fees and/or distribution fees. The 1940 Act generally does not permit a Fund to offer multiple share classes without exemptive relief, and until now, the SEC had only allowed non-listed publicly offered Funds to obtain this type of exemptive relief.
What This Means for Privately Offered Funds
This new multi-class relief for privately offered Funds, when combined with the recent SEC guidance with respect to Rule 506(c) described below, is expected to allow privately offered Funds to access new distribution channels (e.g., registered investment advisors (RIAs) and broker-dealers) via issuance of multiple share classes with different distribution expense and compensation structures. Separate share classes may impose different fees for distribution services, shareholder services and administrative services but generally cannot impose different advisory fees, management or incentive fees, custodial fees or other expenses related to the management of Funds.
Similar to multi-class exemptive orders previously granted to non-listed publicly offered Funds, entities that rely on this new multi-class relief must accept subscriptions for their shares on a continuous basis, at offering prices equal to or greater than the then-current net asset value of the applicable share class and comply with various additional regulations and compliance procedures that do not otherwise apply to privately offered Funds. For example, a private Fund aiming to adopt a multi-class structure where each share class is subject to different service or distribution fees would be required to seek shareholder approval of a distribution plan that complies with the requirements under the 1940 Act. Each investment manager must apply for its own multi-class exemptive relief, and even if an investment manager has previously obtained multi-class relief for non-listed publicly offered Funds, a new multi-class exemptive order must be obtained that will cover both non-listed publicly offered and privately offered Funds.
In March, Katten issued an advisory regarding the SEC’s new guidance related to Rule 506(c) private offerings, highlighting the increased clarity regarding “reasonable steps” verification of accredited investor status, as required under Rule 506(c). The Rule 506(c) guidance, in conjunction with this new ability to obtain multi-share class exemptive relief, will allow privately offered BDCs to generally solicit a broader range of investors and will likely lead investment managers to favor privately offered BDCs, as compared to non-listed publicly offered BDCs, when considering new product launches that target private wealth channels (e.g., RIAs, broker-dealers and other high-net-worth investor channels). Publicly offered BDCs not listed on a securities exchange are subject to blue sky registration, as they do not benefit from federal preemption of state securities laws, adding time, cost and regulatory burden to the registration process. On the other hand, publicly listed BDCs and privately offered BDCs are not subject to blue sky registration. With the ability to offer multiple share classes and more easily engage in Rule 506(c) offerings, a privately offered BDC could be marketed and distributed in a similar manner to a non-listed publicly offered BDC.
We believe that the recent developments discussed above reflect a significant shift by the SEC to facilitate capital formation in the United States and to embrace the creation of investment vehicles that provide exposure to private investments for a broader range of potential investors.

1 Specifically, (i) interval funds operating pursuant to Rule 23c-3 under the Investment Company Act of 1940, as amended (the 1940 Act); and (ii) tender offer funds that periodically offer to repurchase their shares pursuant to Rule 13e-4 under the Securities Exchange Act of 1934, as amended, and Section 23(c)(2) of the 1940 Act.

Changes on the Horizon for UK Alternative Investment Fund Management Regulation

On 7 April 2025, HM Treasury published a consultation to overhaul the regulation of Alternative Investment Fund Managers (“AIFMs“) in the United Kingdom (“Consultation“). The Financial Conduct Authority (“FCA“) has published a call for input alongside the Consultation (“Call for Input“), which indicates its approach to regulating AIFMs within the framework proposed in the Consultation.
The objective of the Consultation is to explore whether the regulatory framework should be simplified. By removing elements from the legislative framework, the UK Government intends to enable the FCA to establish a more graduated and proportionate approach to regulation of AIFMs.
John Verwey, Partner in Proskauer’s regulatory team, notes the headlines are: “

HM Treasury’s Policy Proposals to Streamline the Framework for AIFMs

The Consultation outlines a number of policy proposals to streamline the regulatory framework:
a. Amending the “full scope” AIFM Threshold:
Currently, the rules applicable to managers of funds with professional investors are largely derived from the Alternative Investment Managers Directive (the “AIFMD”). The rules are dependent on certain assets under management (“AUM”) thresholds with managers of funds above particular thresholds are classified as “full scope UK AIFMs”.
The Consultation suggests eliminating fixed legislative thresholds that currently mandate that those managing assets above €100m – or €500m for funds that are unleveraged and without early redemption rights – adhere to what are known as the full-scope AIFMD requirements.
These fixed thresholds have not been updated since 2013, creating a “cliff-edge” effect where market fluctuations can suddenly trigger a steep increase in regulatory burdens for small registered AIFMs and small authorized AIFMs (the “Small Regimes”). Instead, HM Treasury envisions empowering the FCA to set and adjust thresholds dynamically, based on firm size, activities, and associated risk profiles, thus preventing abrupt increases in compliance costs.
b. Additional Proposals for Refinement:
The Consultation also includes some other areas in which HM Treasury intends to legislate as part of the new regulatory framework for AIFMs:

Revising Definitions and Perimeter IssuesKey definitions underpinning the regulatory perimeter would be transferred to the Regulated Activities Order to provide legal clarity and consistency.
Marketing Notification AdjustmentsThe current requirement for a 20-day FCA notification before marketing AIFs may be eased to reduce delays in launching new products.
Private Equity Notification AdjustmentsThe current requirement to disclose significant holdings in UK non-listed companies and issues to the FCA might be removed or the information may have to be notified elsewhere.
Reviewing External Valuation Liabilities:HM Treasury has recognized concerns that the current approach of imposing direct liability on external valuers discourages market participation. This may be addressed by considering a shift to contractual liability, balancing effective risk management with improved market access.
No Changes to the National Private Placement RegimeIt is important to note that no changes are proposed to the existing National Private Placement Regime, which will continue to govern the marketing of overseas AIFs in the UK.

FCA’s Call for Input

Complementing HM Treasury’s proposals, the FCA has published its own Call for Input, outlining how it intends to implement a revised regulatory regime. A key element of this new approach is the proposal to introduce a three-tiered approach to regulation of AIFMs.
a. Making the rules clearer
The FCA plans to group the AIFM regime into clearer, thematic categories that reflect different business activities and phases of the product cycle, as follows:

Structure and operation of the firm;
Pre-investment phase;
During investment; and
Change-related.

By structuring the rules in this way, the FCA hopes it would be easier to set clear requirements for firms of different sizes. The FCA’s key proposal is that AIFMs will be classified in the following tiers:

Largest Firms (more than 5bn net asset value): These firms will be regulated under a regime similar to the current full-scope AIFMD rules – with some burdensome, prescriptive requirements removed. These firms, which manage a significant share of market assets, will remain under rigorous oversight. However, even for these firms, the FCA may remove some elements of prescriptive detail.
Mid-Sized Firms (between £100m and £5bn net asset value): These firms will be subject to a regulatory regime, covering all the same areas as the current regime, but without many of the prescriptive detailed requirements, to allow for greater flexibility. This tier is designed to give mid-sized managers the freedom to innovate without compromising necessary risk controls.
Small Firms (up to £100m net asset value): These firms will have to comply with core, baseline standards intended to minimize the regulatory burden and support market entry, thus encouraging growth in emerging and niche sectors.

The FCA proposes to calculate the thresholds on the basis of net asset value (assets minus liabilities) of the funds managed by the AIFM as opposed to the current approach to focus on the assets under management.
The FCA also plans to evaluate the adequacy and effectiveness of current AIFMD provisions in addressing risks from leverage in line with the forthcoming Financial Stability Board recommendations.
b. Moving up to a higher category
Firms would no longer be required to apply for a variation of permission when moving between size categories. Instead, they would notify the FCA of their classification, including any decision to opt into a higher category – potentially through a process similar to that used under the Senior Managers and Certification Regime (SM&CR). Firms will have the option, but not the obligation, to comply with the requirements applicable to larger firms (i.e. opting-up to a higher threshold regime).
c. Sector-specific rules
The FCA recognises that different types of alternative funds have distinct operating models and proposes bespoke measures tailored to these differences without compromising on investor protection.
The FCA provides some examples on how it might rewrite the rules in relation to risk management rules so that they apply accordingly and proportionally to different types of firms. By way of example, all firms would be required to document and annually review policies and procedures, but only AIFMs with significant leverage or liquidity mismatch would have to set risk limits.
The FCA is also considering a separate regime for venture capital and growth funds and plans to reform the rules or listed closed-ended investment companies.
d. Other Areas of Review
The Call for Input also highlights other areas for future consultation:

Depositary and Custody Requirements:The FCA acknowledges industry concerns around the cost and inflexibility of depositary requirements, especially for private equity and real assets. The FCA is open to considering more flexible custody models, but no immediate changes are being proposed.
Remuneration: The FCA will also review the operation and effectiveness of the remuneration rules for AIFMs, alongside the code for UCITS management companies and investment firms.
Regulatory Reporting and Prudential Requirements: The FCA aims to review the prudential requirements and how they apply to different-sized firms. The FCA will also review the regulatory reporting rules to achieve a more effective reporting regime that is proportionate in its demands on firms and will consider how to achieve this.
Business Restrictions: The FCA recognises that the current rules appear to create costs and inefficiencies, requiring firms to seek top-up permissions for some activities or create new legal entities once a firm passes the size threshold. The FCA will consider the business restriction when they consider how the conduct and prudential rules will apply to firms in the new regime.

Next Steps

The Consultation and the Call for Input are both open for responses until 9 June 2025. Subject to feedback, and to decisions by HM Treasury on the future regime, the FCA plans to consult on detailed rules in the first half of 2026. The FCA will also provide more details on the timeline for implementation. Broadly, the FCA intends to give firms time to adapt to the new regime, while removing unnecessary rules relatively quickly.

Triggers and Risks

Having granted a Writ of Certiorari to review the decision of the United States Circuit Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) in Amalgamated Bank et al v. Facebook, Inc. et al (In re Facebook, Inc. Securities Litigation), 87 F.4th 934 (9th Cir. 2023) (“Facebook”)[i], and having heard oral argument by the parties and amici curiae, on November 22, 2024 the United States Supreme Court issued an unusual decision — surprising to some but perhaps not to others. The Court dismissed the case, stating only that the Writ of Certiorari had been “improvidently granted”. (604 U.S. 4 (2024)
Facebook involved, among other things, the question of whether the discussion of a risk can be misleading if it does not disclose previous occurrences of that risk or of events that increase the probability of that risk. Facebook did not make such disclosure, and the Ninth Circuit held that the plaintiffs had adequately pleaded a cause of action under Section 10(b) of the Securities Exchange Act of 1934 (the “1934 Act”) and Rule 10b-5(b) thereunder on the grounds that the omission of such information rendered its risk discussion misleading. Facebook asked the Supreme Court to review the judgment of the Ninth Circuit on the following somewhat oddly posed question:
Are risk disclosures false or misleading when they do not disclose that a risk has materialized in the past, even if that past event presents no known risk of ongoing or future business harm?
A similar, although not identical, question was involved in the Ninth Circuit’s previous decision in Rhode Island v. Alphabet, Inc. (In re Alphabet, Inc. Securities Litigation), 1 F.4th 687 (9th Cir. 2021) (“Alphabet”). Interestingly, following the decision of the Ninth Circuit, the Supreme Court denied Alphabet’s Petition for a Writ of Certiorari.
The clear-cut answer to the question raised in both Alphabet and Facebook seems to be that, sometimes, depending on the circumstances and the language of the risk factor, some historical information may be necessary to qualify the discussion of a risk, at least somewhere in the disclosure document. Analysis of both Alphabet and Facebook is necessary to attempt an understanding of this issue under the law of the Ninth Circuit and, indeed, after the non-decision of the Supreme Court in Facebook, presumably the law of the land. While these cases raised a multitude of collateral issues, especially in the lower courts, this note will focus on the specific question directed to the Supreme Court.
Click here to view the full article.

[i] In October 2021, Facebook, Inc., the parent company of Facebook, changed its name to Meta Platforms, Inc. However, the defendant is referred to as “Facebook” throughout the litigation.

SEC Staff Cede Jurisdiction Over Certain Stablecoins

On 4 April 2025, the SEC’s Division of Corporation Finance (Division) issued a statement (Statement) providing that the offer and sale of certain “Covered Stablecoins” do not involve the offer and sale of securities within the meaning of federal securities laws. As such, persons involved in the process of offering, selling and redeeming Covered Stablecoins are not required to register those transactions with the SEC or rely on an exemption from registration.
The Division defines “Covered Stablecoins” as crypto assets that are designed to maintain a stable value relative to the US Dollar (USD) on a one-for-one basis, can be redeemed for USD on a one-for-one basis, and are backed by low-risk and readily liquid assets held in a reserve, with a USD value that, at a minimum, meets the redemption value of the stablecoins in circulation. Accordingly, stablecoins outside this definition – including those that are pegged to the price of digital assets or other currencies besides USD and algorithmic stablecoins – are not covered by the guidance included in the Statement.
The Division provided its analyses of Covered Stablecoins under Reves v. Ernst & Young and SEC v. W.J. Howey Co., the key cases setting forth the tests for whether an asset is a “security.” If not considered to be “securities,” Covered Stablecoins would likely be considered “commodities,” and thus subject to the enforcement jurisdiction of the CFTC. However, legislation currently pending in Congress could shift oversight of these digital assets to banking regulators.
Commissioner Caroline Crenshaw criticized the Statement as doing “a real disservice to USD-stablecoin holders,” and questioned whether any existing stablecoin falls within the scope of “Covered Stablecoin”.
Following the Division’s recent Statement on Meme Coins, the Statement appears to be another small but positive step towards regulatory clarity for the digital asset industry.

SEC Provides Stablecoin Guidance Amid Legislative Developments

On Friday, the Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued guidance clarifying when certain stablecoins may not constitute securities under the federal securities laws.[1] This development comes as Congress is actively considering legislation — notably the GENIUS Act and the STABLE Act — that would explicitly carve out payment stablecoins from securities definitions and establish a comprehensive federal regulatory framework for payment stablecoins. The timing suggests the SEC is attempting to provide interim clarity while legislative solutions remain pending.
Overview of the Division’s Guidance
The guidance provides detailed analysis of whether “Covered Stablecoins” constitute securities under the federal securities laws. The Division defined Covered Stablecoins as digital assets designed to maintain stable value relative to the US Dollar (USD) on a one-for-one basis, redeemable for USD on demand, and backed by assets held in a reserve with value meeting or exceeding the redemption value of stablecoins in circulation. These reserves must consist of low-risk, readily liquid assets to enable issuers to honor redemptions.
The Division’s analysis applied two distinct securities law tests. First, under the Reves “family resemblance” test for note-like instruments, the Division examines four factors: (1) buyer and seller motivations; (2) plan of distribution; (3) reasonable expectations of the investing public; and (4) risk-reducing features.[2] The Division concluded that Covered Stablecoins are issued and purchased for commercial rather than investment purposes, with buyers motivated by stability and utility in commercial transactions rather than profit potential. According to the Division, the price stability mechanisms of Covered Stablecoins minimize speculative trading, and marketing materials typically emphasize payment functionality rather than investment returns.
Importantly, the Division viewed adequately funded reserves as a significant risk-reducing feature under the fourth Reves factor, which examines whether there are features that reduce risk such that the application of securities laws becomes unnecessary. In the Reves decision, the Supreme Court noted that instruments that are “collateralized” may possess sufficient risk-reducing features to avoid classification as securities, and the Division draws a parallel between such traditional collateralization and stablecoin reserves.[3]
Second, the Division applied the Howey test for investment contracts, examining whether there is an investment of money in a common enterprise with reasonable expectation of profits derived from entrepreneurial efforts of others. The Division determined that buyers lack reasonable profit expectations since Covered Stablecoins are generally marketed for use in commerce rather than as investments, offering price stability instead of appreciation potential.
Commissioner Caroline Crenshaw issued a dissenting statement challenging the Division’s analysis. She emphasized that approximately 90 percent of USD stablecoins circulate through intermediaries rather than direct issuer-to-retail distribution channels, and as a result, retail holders generally have no direct redemption rights against issuers and no claims to the reserve assets.
For its part, the Commodity Futures Trading Commission (CFTC) has long maintained that stablecoins are commodities and, therefore, are subject to the CFTC’s anti-fraud and anti-manipulation enforcement jurisdiction. For example, in October 2021, the CFTC brought and settled an enforcement action with Tether Holdings Limited for making untrue or misleading statements of material fact when it claimed that the US dollar tether token (USDt) was fully backed by US dollars held in reserve.[4]
Regulatory and Market Implications
The guidance may serve as an interim regulatory clarification until comprehensive legislation passes, potentially offering some clarity for issuers of Covered Stablecoins. However, its effectiveness may be limited since proposed legislation, if adopted, would likely supersede it with explicit statutory carve-outs. Furthermore, both the GENIUS Act and STABLE Act would explicitly assign enforcement authority over payment stablecoins to federal and state banking regulators rather than the SEC, potentially creating a different regulatory framework than what might be inferred from the Division’s guidance.
[1]See Katten’s Quick Reads post on the Division’s recent similar guidance on proof-of-work mining activities and memecoins here.
[2]Reves v. Ernst & Young, 494 U.S. 56 (1990).
[3]Id. at 69.
[4]See also In the Matter of Opyn, Inc., 2023 WL 593238, at *3 (“Ether and stablecoins such as USDC are encompassed in the definition of ‘commodity’ in Section 1a(9) of the [Commodity Exchange Act], and are subject to the applicable provisions of the Act and Regulations.”).