SEC: Unaffiliated Voters Not a Controlling Group

The SEC's Division of Corporation Finance added three new answers to their crypto FAQ on November 2, addressing the definition of a controlling group in the context of digital commodities.

According to the FAQ, governance participants are not considered a group if they are not affiliated and do not have an agreement to act in concert outside the governance system. This applies even when the governance system is part of a foundation and votes are based on holding the native token.

The FAQ also clarifies that a central party oversees participation when it has unilateral authority to grant or limit access, change voting processes, or alter code. However, discretion exercised solely through a governance system whose participants are not themselves a central party is generally not considered oversight by a central party.

The clarification is significant as it addresses concerns raised by the Hyperliquid Policy Center in an October 19 comment letter, which warned that the definition of a central party could be misconstrued to capture any crypto system with a governance token.

The staff's views are non-binding and do not have legal force or effect, and the Commission has neither approved nor disapproved their content. Whether a group exists remains a facts-and-circumstances call, and the FAQ does not declare any token a commodity or a non-security.