Major crypto industry investors Andreessen Horowitz and Union Square Ventures reportedly held a private meeting with U.S. Securities and Exchange Commission (SEC) officials to discuss the exemption of blockchain-based tokens from the agency’s oversight.

The Silicon Valley-based venture capital firms and their special counsel met with senior officials from the SEC’s Division of Corporate Finance and the offices of some commissioners on March 28, the Wall Street Journal reported today.

The companies apparently argued that regulation could suppress blockchain innovation, and posited that cryptographic tokens do not constitute investments (and therefore securities). Instead, they argued, tokens are a means of accessing blockchain-based services and networks, or in other words are so-called “utility tokens,” the report said.

The firms would not, however, object to SEC intervention in cases of fraud.

According to sources cited in the article, however, SEC officials are doubtful that the agency would provide such a broad exemption.

They speculated that the SEC would be more amenable to granting a limited exemption if companies agree to place a cap on individual investor participation in initial coin offerings (ICOs) and prohibited the resale of tokens at a higher price to third parties.

Lawyers from Cooley, Perkins Coie and McDermott Will & Emery also attended the meeting, as did an unidentified lobbyist from the National Venture Capital Association, the report added.

Notably, SEC chairman Jay Clayton raised doubts about the utility token classification earlier this month during a speech at Princeton University, reiterating his previous statement that almost all token sales offer securities.

“If I have a laundry token for washing my clothes, that’s not a security,” he said at the time. “But if I have a set of 10 laundry tokens and the laundromats are to be developed and those are offered to me as something I can use for the future and I’m buying them because I can sell them to next year’s incoming class, that’s a security.”

Office meeting image via Shutterstock