• The SEC has issued a warning to Grayscale regarding the Filecoin (FIL) token, claiming that it qualifies as a security.
• As a result, Grayscale was asked to retract its Form 10 request for the Filecoin Trust, which would have made it an entity reporting quarterly results.
• Instead, Grayscale was asked to register the Filecoin Trust as an investment vehicle in accordance with the Investment Company Act of 1940.
SEC Issues Warning About Filecoin
The Securities and Exchange Commission (SEC) recently issued a warning to crypto manager Grayscale, part of the Digital Currency Group (DCG), about its proposed Filecoin Trust’s Form 10 application. The SEC believes that Filecoin (FIL) tokens qualify as securities and is asking Grayscale to retract their application and instead register as an investment vehicle in accordance with the Investment Company Act of 1940.
Form 10 Application Voluntarily Filed
Grayscale had voluntarily filed the Form 10 request with the intention of making Filecoin Trust a publicly traded company, meaning that it would have been required to report quarterly results like other publicly traded companies. However, if registered as an investment company according to 1940 regulations, this could hinder its ability to issue securities and present other limitations.
Howey Test Used To Determine Security Status
In order for the Filecoin Trust to be classified as an investment company under 1940 regulations, they must pass what is known as The Howey Test – a test used by courts in order to decide whether or not a transaction qualifies as an investment contract and can therefore be considered a security.
Risks Of Registering As An Investment Company
If registered as an investment company there are certain risks involved including but not limited to: potential inability to issue securities; potential limitations on investments; possible higher standards of fiduciary duty; potential liability for any misstatements or omissions; and more stringent record keeping requirements among others.
Conclusion
The SEC’s recent statement signals their position on FIL being classified as a security and is another example of them taking action against crypto-related companies. It remains yet unknown if Grayscale will comply with their request or appeal it in court but one thing is clear – registering the Filecoin Trust may ultimately lead them down quite different paths than originally anticipated.
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