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- California regulators opposed an SEC proposal on October 21 regarding crypto offerings.
- The disputed rule would bypass state registration requirements for specific covered transactions.
- California warned that removing state reviews would weaken safeguards against fraudulent offerings.
California’s financial regulator opposed a Securities and Exchange Commission (SEC) proposal on Oct. 21, warning that removing state review of crypto offerings would weaken investor protections. The dispute concerns whether issuers using new federal fundraising exemptions should also face state registration requirements before selling to investors.
California Seeks to Preserve State Offering Reviews
The Department of Financial Protection and Innovation (DFPI) submitted its objections in an Oct. 20 comment letter. Its opposition targets proposed Rule 500, which would override state securities registration and qualification requirements for covered transactions.
Rule 500 would designate purchasers in covered transactions as “qualified purchasers,” allowing those sales to bypass state registration and qualification requirements. The designation would follow participation in a covered transaction, rather than itself establishing a buyer’s wealth or financial sophistication.
California argues that removing state review would weaken protection against fraudulent or abusive offerings before investors commit money. The state generally requires securities offered or sold to residents to be qualified with its regulator or covered by an exemption, alongside applicable federal requirements.
SEC Proposes Two Crypto Fundraising Exemptions
The SEC introduced Regulation Crypto Assets on Aug. 18. It would create registration exemptions for certain investment contracts involving crypto assets.
A startup exemption would permit offerings of up to $5 million over four years. A separate fundraising exemption would allow up to $75 million during each 12-month period.
Both routes would require issuers to provide investor disclosures tailored to their circumstances. Issuers using the larger exemption would also provide financial statements and comply with continuing reporting requirements, giving investors information after the initial sale.
The framework would give crypto businesses clearer ways to raise capital domestically. Its stated goals include reducing incentives for issuers to operate offshore while preserving investor protections.
SEC Would Retain Antifraud Protections
The exemptions would preserve federal antifraud and antimanipulation requirements. The proposed limits on state authority concern registration and qualification; they would not eliminate all state enforcement powers.
The proposed exemption from state review would also apply to certain resales after the initial offering. The comment deadline was Oct. 20, and the framework remains proposed.
