A group of prominent corporate law scholars, John Coates, John C. Coffee Jr., James D. Cox, Merritt B. Fox, and Joel Seligman (collectively operating as the “Shadow SEC”), submitted Shadow SEC Statement No. 15 on October 7, 2026.
The submission urges the Securities and Exchange Commission to withdraw and formally re-propose its proposed Regulation Crypto Assets (File No. S7-2026-27).
With the official public comment period closing on October 20, 2026, the letter delivers a scathing administrative critique, asserting that the SEC’s proposed tailored exemptions create unnecessary regulatory carve-outs while ignoring empirical data embedded directly within the Commission’s own Proposing Release No. 33-11434.
SEC’s Own Capital-Formation Figures Undercut the Need for a Bespoke Framework
The central thesis of Statement No. 15 is that existing statutory offering exemptions under the Securities Act of 1933 already provide robust, viable pathways for digital asset issuers to raise capital legally without constructing a brand-new safe harbor regime.
To prove this point, the scholars cited the SEC’s internal economic data published within the proposing release, highlighting how active crypto capital formation remains under established exemptive pathways:
- Regulation D: 581 distinct issuers executed 682 digital asset offerings, successfully raising $4.7 billion.
- Regulation A: 14 issuers successfully navigated qualification to raise $546 million.
- Regulation Crowdfunding: 41 early-stage issuers raised $13.6 million.
The scholars argue that these figures directly undermine the claim that existing federal securities laws stifle crypto innovation. Because issuers are already raising billions of dollars through standard Reg D, Reg A, and Reg CF frameworks, creating a bespoke, conditional exemption regime risks weakening investor protections without providing additional capital-formation utility.
The Rule 104 “Free Pass” for Past Misconduct
Beyond capital-formation mechanics, the scholars target proposed Rule 104, which governs bad actor disqualification provisions for transitioning entities under the safe harbor.
The Shadow SEC letter explicitly points out that proposed Rule 104’s disqualification clauses do not apply to misconduct committed prior to the rule’s effective date. The scholars characterize this carve-out as a procedural “free pass” for prior bad actors, allowing legacy offenders who previously engaged in unregistered offerings or securities violations to enter the new regulatory framework without facing standard statutory disqualifications.
The scholars argue that carving out pre-existing bad conduct subverts the statutory intent of bad actor disqualification rules (such as those under Rule 506(d) of Regulation D), effectively rewarding non-compliance by offering a clean regulatory slate to past bad actors.
The Call to Withdraw and Re-Propose
Given these structural flaws, Coates, Coffee, Cox, Fox, and Seligman urge the Commission to pull the current draft off the table. They demand that the SEC re-propose Regulation Crypto Assets only after closing the Rule 104 bad actor loophole, incorporating rigorous statutory bad actor checks, and aligning any potential exemptive safe harbor with established investor protection standards.
As the SEC evaluates public feedback following the October 20 comment deadline, this joint letter from top legal academics establishes a powerful administrative counterweight against weakening traditional securities enforcement in digital asset markets.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.
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