Sep. 9, 2026
VIA ELECTRONIC SUBMISSION September 9, 2026 Vanessa A. Countryman, Secretary Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-1090 Re: Public Comment on Proposed Rule: Regulation Crypto Assets File No. S7-2026-27; Release Nos. 33-11434; 34-106150; RIN: 3235-AN38 Dear Secretary Countryman: I am submitting this comment letter as an accredited investor. While I appreciate the Commission's efforts to establish a clearer, tailored regulatory structure for digital assets, I have grave concerns regarding the investor protection vulnerabilities introduced by the current proposal. In its present form, the rule inadvertently creates structural blind spots that sophisticated bad actors will exploit to perpetrate fraud and deception. Specifically, my concerns focus on three key areas of the proposed framework: 1. The "Startup Exemption" Dilutes Mandatory Transparency The proposal to allow crypto asset offerings of up to $5 million over a four-year period with only "streamlined, principles-based disclosures" is a dangerous concession. Fraud in the digital asset space frequently thrives in information asymmetries. Deceptive issuers routinely use vague technical jargon to obscure the true nature of their projects. By shifting from rigorous, prescriptive disclosures to subjective, principles-based requirements, the Commission is lowering the barrier to entry for fraudulent operations. Accredited investors require structured, audited financial data and verified technical audits to differentiate legitimate ventures from sophisticated scams; "principles-based" flexibility will simply be used as a shield to hide material omissions. To effectively prevent deception, the Commission must mandate specific, non-negotiable categories of disclosure for all issuers, regardless of the offering size. Mandatory Tokenomics Disclosure: The financial architecture of a digital asset is the primary vehicle for modern investment fraud. Principles-based language allows issuers to mask structural dilution and predatory insider incentives. The Commission must require a standardized "Tokenomics Prospectus" detailing: Allocation and Supply Dynamics: A granular breakdown of total supply, circulating supply, maximum caps, and the exact distribution percentages allocated to founders, insiders, early investors, and the public treasury. Lock-up and Vesting Schedules: Explicit, legally binding timelines and smart-contract-enforced vesting schedules for insider allocations. Hidden token unlocks allow insiders to pump valuations and dump millions of tokens onto the market, leaving subsequent investors with collapsed assets. Value Accrual and Utility Mechanics: A clear explanation of how the token captures value within the ecosystem. The disclosure must explicitly state whether the token relies on inflationary distribution rewards, deflationary burning protocols, or transactional demand. This prevents issuers from manufacturing artificial deflation or using ponzi-like yield models to deceive investors. Independent Source Code Audits: In the digital asset ecosystem, "code is law," and un-audited code is an active breeding ground for fraud. Deceptive issuers frequently code hidden administrative privileges, such as "mint" or "freeze" functions, allowing them to rug-pull investors or steal treasury funds. The SEC must require a comprehensive, independent security audit from a certified third-party blockchain security firm. This audit must cover smart contract vulnerabilities, access control mechanics, and multi-signature security arrangements. The full report-not a redacted summary-must be filed publicly before any capital is raised. Treasury Management and Wallet Transparency: To prevent the misappropriation of investor funds, issuers must disclose the public blockchain addresses of all entity-controlled treasuries and insider wallets. Issuers should be required to provide real-time or regular periodic disclosure of wallet balances and transaction logs, ensuring that funds raised under the exemption are used strictly for the stated development goals rather than private insider enrichment. 2. The Form TR Safe Harbor Method is Vulnerable to Manipulation The proposed conditional safe harbor-where a crypto asset ceases to be treated as part of an investment contract upon an issuer's certification that it has ceased "essential managerial efforts"-is highly problematic. Deceptive founders can easily abuse this mechanism by staging a superficial exit or utilizing decentralized front organizations to claim a project is "sufficiently decentralized" or "abandoned." Filing a transition report on Form TR should not automatically trigger a safe harbor. Without a rigorous, independent audit process by the Commission to verify that managerial control has truly dissolved, fraudulent actors will use Form TR as a compliance loophole to wash away their legal liabilities while leaving retail and accredited investors holding worthless or manipulated tokens. 3. State Blue Sky Preemption Cripples Local Enforcement Preempting state-level registration and qualification requirements removes a critical layer of localized investor protection. State regulators are often the first responders to regional affinity fraud and deceptive crypto schemes. While the proposal purports to preserve state antifraud enforcement authority, stripping states of their upfront registration oversight prevents them from stopping fraudulent offerings before they launch. Relying solely on federal oversight and post-facto state enforcement leaves investors exposed to immediate, irreparable capital loss. Conclusion and Recommendations To protect investors from pervasive deception, I urge the Commission to revise the proposed rule to: Maintain strict, mandatory disclosure templates for the Startup Exemption, including verified smart contract audits and independent financial reviews. Implement a mandatory SEC review and objection period for any Form TR safe harbor filing, rather than allowing immediate or self-certified transitions. Preserve state-level regulatory review or establish a formal joint federal-state oversight mechanism for tiered offerings. Regulatory clarity must not come at the expense of market integrity. Thank you for your time and consideration of these critical investor protections. Sincerely, Rick Liu Reno, NV