State securities regulators urge SEC to withdraw its crypto offering rule

State securities regulators have asked the SEC to withdraw a proposed rule that would let crypto issuers raise up to $5 million over four years without registering. In an Oct. 20 letter, the North American Securities Administrators Association (NASAA) argues the rule would leave retail investors without basic protections [1].

The proposal, Regulation Crypto Assets (File No. S7-2026-27, 91 FR 54510), would create two exemptions from SEC registration for certain investment contracts involving crypto assets. It would also add a safe harbor, a set of conditions under which a crypto asset would be deemed not to be subject to an investment contract, and so not a security under those laws. Comments closed Oct. 20 [2].

NASAA's letter, signed by its president, Elizabeth H. Bowling, says the proposal "lacks the robust investor protections necessary for the types of offerings, and offerees, contemplated under its exemptions." It says the rule "should be withdrawn because it is bad policy that would endanger investors, harm other registrants, and weaken the securities markets generally" [1].

Its specific objections:

• Startup exemption. Proposed Rule 200 would let issuers raise up to $5 million over four years. NASAA says it "would serve as an ideal vehicle for fraud and victimization." It predicts "a proliferation of pump and dump schemes, known in crypto parlance as 'rug pulls'" [1].
• Immediate resale. Allowing immediate resale to retail buyers risks "victimization by insiders seeking immediate divestment for quick profits," NASAA says [1].
• State preemption. Preemption means federal rules override state ones. NASAA argues the proposal "exceeds the Commission's statutory authority to preempt state securities regulation." It says proposed Rule 500 violates the Administrative Procedure Act, the law governing how agencies make rules [1].

NASAA also offers fallback fixes in case the rule is not withdrawn, such as replacing the proposal's principles-based disclosures with existing prescriptive disclosure requirements [1].

The rule remains a proposal. The next step is whether the Commission adopts a final rule, changes it, or withdraws it, as NASAA asks.

Sources

1. North American Securities Administrators Association, letter to SEC Secretary Vanessa A. Countryman re File No. S7-2026-27, Regulation Crypto Assets, Oct. 20, 2026, https://www.nasaa.org/wp-content/uploads/2026/10/NASAA-Comment-Letter-re-SEC-File-No-S7-2026-27_10-20-2026.pdf, accessed Oct. 22, 2026, 5:15 p.m. ET.
2. Securities and Exchange Commission, "Regulation Crypto Assets," proposed rule, 91 FR 54510, Aug. 21, 2026, File No. S7-2026-27, https://www.federalregister.gov/documents/2026/08/21/2026-17183/regulation-crypto-assets, accessed Oct. 22, 2026, 4:37 p.m. ET.

Holding the Corner.

Not financial advice.