SEC’s ‘Regulation Crypto Assets’ Provides New Offering Paths but Could Create Private Litigation Risks

The Securities and Exchange Commission has proposed Regulation Crypto Assets, a framework for covered investment contracts involving a crypto asset that is not itself a security, according to a memorandum from Skadden, Arps, Slate, Meagher & Flom LLP. The proposal, dated August 18, 2026, would offer two fundraising routes if adopted. The first is a one-time startup exemption permitting up to $5 million in aggregate covered transactions over a period of up to four years for the same or a substantially similar crypto asset. The second is a fundraising exemption allowing Tier 1 offerings of up to $20 million and Tier 2 offerings of up to $75 million in a 12-month period.

The proposal also includes a safe harbor available to issuers whether or not they use a fundraising exemption. It would clarify when investment contract status ends for purposes of the federal definition of a security. The safe harbor applies once an issuer has completed or permanently stopped the essential managerial work it promised, is not making and does not intend to make new promises to perform such work, and has filed a transition report explaining why and certifying that these conditions were met.

Skadden cautions that the framework could also create private litigation exposure. The proposal expressly preserves private parties' ability to argue that a crypto asset remains tied to an investment contract or is otherwise a security after a transition report is filed. Purchasers after that filing could potentially sue under Section 12(a)(1) of the Securities Act of 1933, with courts applying the Howey test to determine whether essential managerial efforts were actually completed or ceased. Skadden notes that such questions are fact-intensive and it remains to be seen how such claims would fare in court.

Skadden also flags potential claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 for materially misleading statements or omissions in disclosure documents or the transition report, including allegations that the issuer had not in fact completed or ceased its promised managerial efforts. Plaintiffs would still need to establish reliance and causation, and federal and state antifraud and antimanipulation rules would continue to apply. Skadden recommends issuers weigh pathway selection, align disclosures across filings, whitepapers and social media, and plan transition reports with measurable endpoints, given their litigation implications.