A bill that would categorize cryptocurrencies sold to institutional investors as securities was presented to the New Jersey General Assembly on November 30 by Assemblyman Herb Conaway Jr.
The proposed legislation mainly targets virtual currencies sold directly to institutional investors, as it is explicitly stated:
“This bill classifies all virtual currencies issued and sold to institutional investors as securities.”
The bill defines institutional investors as entities such as banks, hedge funds, endowments, private equity firms, pension funds, mutual funds, and other qualified institutional buyers recognized by federal regulators.
“Under the bill, a virtual currency issued and sold directly to an institutional investor would be classified as a security and subject to the state’s ‘Uniform Securities Law’ and any regulations promulgated by the Bureau of Securities in the Division of Consumer Affairs. to achieve the objectives of the Bill.”
Meanwhile, the bill is limited in scope to the state level and may not meet federal Securities and Exchange Commission (SEC) criteria.
Securities law
Over the past year, the securities law has generated a lot of attention from the crypto community due to the way the SEC has weaponized it against the nascent industry.
For context, the financial regulator has classified more than 60 crypto assets as securities based on its interpretation of the Howey Test in various lawsuits.
The Howey Test is used to determine whether certain transactions qualify as investment contracts and are therefore subject to securities laws.
The problems were further exacerbated when a US court issued an ambiguous ruling on Ripple’s XRP. The court ruled that the programmatic sales and distributions of XRP are not securities because they do not meet the Howey Test criteria.
However, the same court ruled that XRP sales to institutional buyers could be considered securities due to their understanding of the link between the price of XRP and Ripple’s performance.
Meanwhile, major crypto stakeholders such as Coinbase CEO Brian Armstrong and crypto investor Mark Cuban have pushed back against the SEC’s interpretation. Instead, they urged the regulator to introduce new regulations tailored to the needs of the emerging industry.
