Clarity on the Horizon for Digital Assets: Regulation Crypto Assets
Summary: On August 18, the SEC proposed new rules titled “Regulation Crypto Assets,” which would create a tailored securities offering regime for certain investment contracts involving crypto assets. The proposal builds on the Commission’s March 2026 clarification of how the securities laws apply to crypto assets and transactions involving the same. In his statement, Chairman Atkins characterized the proposal as designed to “facilitate capital formation,” “invite innovators back to the United States” and “allow crypto asset innovation to flourish in the United States in the years ahead.”
- The rules define “covered investment contracts” as investment contracts in which a crypto asset that is not itself a security, which is subject to the investment contract, for which no other asset is subject to.
- The proposed rules are made up of four key components: (i) a one-time “startup exemption” permitting offerings of up to $5 million during a four-year period; (ii) a “fundraising exemption,” permitting offerings of up to $75 million in a 12-month period; (iii) an “investment contract safe harbor,” under which a covered investment contract would be deemed to have ceased to exist if the issuer certifies to the Commission that it has completed or permanently ceased all essential managerial efforts it promised to take and files a transition report; and (iv) a definition of “qualified purchaser” under the Securities Act that would preempt state securities law registration and qualification requirements.
Takeaway: This rulemaking represents a first-of-its-kind, fit-for-purpose framework for non-security crypto assets that are subject to an investment contract, and marks the most significant digital asset-focused rulemaking to date. While there remains a long road to adoption, this rulemaking is the first glimpse of what a comprehensive structure for crypto regulation may look like.
Best Practice Tip: The comment period for Regulation Crypto Assets closes on October 20; asset managers seeking to submit a comment letter should act quickly. Keep an eye on SEC Watch; we will provide updates on any notable developments.
Rescission of the Pay-to-Play Rule for Investment Advisers
Summary: On September 3, the SEC proposed to rescind Rule 206(4)-5 under the Advisers Act, commonly known as the “Pay-to-Play” Rule. The rule, adopted in 2010, imposes a two-year ban on compensated advisory services to a government entity after an adviser or its covered associates make political contributions to officials who can influence adviser selection. Chairman Atkins framed the rescission as part of a broader effort to return the SEC to its core mission, stating that political contributions are “more properly governed by local ordinances, state laws, and federal election regulations—not by the SEC.”
- The Commission cited the rule’s suppression of political speech, strict-liability standard (under which contributions as small as $150 can trigger penalties), operational complexity, adverse effects on hiring, and potential harm to government clients who may lose access to qualified advisers.
Takeaway: The pay-to-play rule has been a repeated focus area of SEC examinations and enforcement investigations leading to more than 20 enforcement actions since 2014. While the rule’s rescission would be a welcome relief, investment advisers must still comply with other related securities laws, operative policies and procedures, and any state or local pay-to-play laws. In addition, the Commission has made clear its position that, even without the rule, pay-to-play practices would remain inconsistent with an adviser’s fiduciary duties and may constitute fraud under the federal securities laws.
Best Practice Tip: This proposal is subject to the 60-day comment period, which encompasses the final months of the 2026 campaign season. Asset managers that advise or seek to advise government entities should be mindful of continuing obligations under the rule through this campaign season. If rescinded, we recommend that asset managers identify their specific pay-to-play risk exposures in light of their business model, client base, and organizational structure, and review and update their existing compliance policies and procedures.
Enforcement Activity on the Rise
Summary: The Enforcement Division has stepped up its activity in recent weeks with a number of new litigated actions being filed and enforcement steps taken by the Staff. For example:
- On August 21, the SEC sued two former investment bankers for insider trading by filing a complaint that appears to be based solely on circumstantial evidence. The Complaint alleges that one defendant tipped the other that the company whose stock was traded had agreed to be acquired. The second defendant purportedly bought over 2.2 million shares of the stock and then allegedly tipped others. The Complaint alleges that the second defendant made ~$18.5 million when the stock price rose after the acquisition was announced. The other tippees allegedly made profits of ~$515,000.
- Also on August 21, the SEC brought a subpoena enforcement action against 6 entities and 6 related individuals seeking an order to compel compliance with the SEC’s document and testimony subpoenas. The SEC alleged that the subpoenas were first issued beginning in April 2024, and that respondents had nearly entirely failed to comply with the document subpoenas (producing just over 8,000 documents out of a universe of potentially millions of responsive documents) and several respondents had failed to appear for testimony or counsel for respondents had unilaterally canceled testimony shortly before it was set to occur. In addition, on September 4, the SEC brought a subpoena enforcement action against an RIA seeking an order to compel compliance with an administrative subpoena. The SEC alleged that the RIA’s refusal to provide documents began during an examination and continued into a subsequent enforcement action. A subpoena enforcement action is a rare step and is typically only reserved for the most egregious noncompliance.
- On August 27, the SEC charged 38 entities that allegedly made material misrepresentations in Forms ADV filed with the SEC in 2025 and 2026 and falsely held themselves out as legitimate advisory firms to U.S. investors. The cases are notable as they appear to be the fruits of an end-of-fiscal-year sweep that will serve to boost the Division’s enforcement numbers.
- On September 8, the SEC announced a settlement with a dual registrant alleging failures to file Forms 13F. The SEC alleged that the firm was required to file quarterly Forms 13F beginning in at least February 2022, but did not do so until May 2026. The SEC alleged that throughout this period the firm’s CCOs recommended that the firm file Forms 13F, but no forms were filed. The firm agreed to pay a $500,000 civil penalty.
Takeaway: As we have seen over the last several months, the reports of the Enforcement Division’s death appear to have been greatly exaggerated. The recent enforcement actions and general trends within the Enforcement Division appear to be signs that the Division is becoming more active after its unprecedented slowdown in 2025.
Best Practice Tip: With an increasingly motivated Enforcement Staff back on the scene with an active agenda and strategy, advisers should continue to ensure their houses are in order and carefully consider strategy in ongoing enforcement matters.
Prepared by Your Simpson Thacher Asset Management Regulatory and Enforcement Team»
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]
