#SECCryptoRoundtable



Mark T. Uyeda, Acting Chairman



Washington D.C.

March 21, 2025




Good afternoon and welcome to the Crypto Task Force’s inaugural roundtable,
which will explore the complex legal issues involved in classifying
crypto assets under the federal securities laws.

In the wake of the 2008 Financial Crisis, a person or group going by
the name of Satoshi Nakamoto released a white paper describing a new
peer-to-peer electronic cash system called Bitcoin that helped form an
entirely new digitally native asset class.[1]
Seventeen years later, market participants, lawyers, academics,
policymakers, and regulators are still grappling with critical questions
related to the status of these novel crypto assets under the federal
securities laws.[2]
This disagreement is most pronounced when it comes to application of
the investment contract test established by the Supreme Court in its
1946 opinion in SEC v. W.J. Howey Co.[3] (known as the “Howey test”) to crypto assets.[4]

The challenges in applying Howey’s investment contract test
are not unique to crypto. I have firsthand experience with it: as Chief
Advisor to the California Corporations Commissioner, I argued before a
California appellate court that the offering of a non-security
certificate of deposit packaged with the separate receipt of a bonus
payment constituted an investment contract.[5] Although the state court concluded that it was not,[6] other federal appellate courts have held that similar arrangements satisfy the Howey test.[7]

In the years following Howey, various courts of appeals are split on various nuances and other aspects of that decision. For example, does Howey require the pooling of investors’ funds and pro rata distribution of profits[8] or is it sufficient that investors need only share risk with the promoter?[9] In some circuits, the fortunes of all investors must depend on the promoter’s expertise,[10]
but in other circuits, the fortune of the investor must be “interwoven
with and dependent upon the efforts and success of those seeking the
investment or of third parties.”[11]
Similarly, the courts of appeals are divided as to whether an
investment contract requires post-sale efforts by the promoter or if
“significant pre-purchase managerial activities undertaken to insure the
success of the investment” suffices.[12]

Differences in opinions among various courts is not unusual. After
all, a judicial opinion is limited to the particular facts and
circumstances of that case. When judicial opinions have created
uncertainty for market participants in the past, the Commission and its
staff have stepped in to provide guidance.

For example, the Commission clarified the meaning of an investment
adviser’s fiduciary duty under section 206 of the Advisers Act in
response to industry demand.[13] The Commission also opined on the application of Howey to offers and sales of whisky warehouse receipts[14] and condominiums,[15]
among other things. This approach of using notice-and-comment
rulemaking or explaining the Commission’s thought process through
releases – rather than through enforcement actions – should have been
considered for classifying crypto assets under the federal securities
laws. Today’s roundtable is an important first step in addressing that
concern.

Thank you to the Crypto Task Force and panelists for your time in
preparing for this roundtable. I look forward to the discussions to
follow.

[1] See Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (Oct. 31, 2018), https://bitcoin.org/bitcoin.pdf.

[2]This is exemplified by the fact that the same crypto asset is today
listed as a security by one broker-dealer and a non-security on other
platforms. See Benjamin Schiller, Ether’s Prometheum Test, CoinDesk (June 14, 2024), https://www.coindesk.com/opinion/2024/02/08/ethers-prometheum-test.

[3] 328 U.S. 293 (1946).

[4] See Lewis Cohen et al., The Ineluctable Modality of Securities Law: Why Fungible Crypto Assets Are not Securities (Nov. 10, 2022), https://ssrn.com/abstract=4282385; Thomas Lee Hazen, Tulips, Oranges, Worms, and Coins – Virtual, Digital, or Crypto Currency and the Securities Laws, 20 N.C. J.L. & Tech. 493 (2019), //journals.law.unc.edu\/ncjolt/wp-content/uploads/sites/4/2019/05/Hazen_Final.pdf.

[5] See Brief for Respondent, Reiswig v. Dept’ of Corporations for the State of California, 50 Cal.Rptr.3d 386 (Oct. 27, 2006) (No. G036509), at 9-20.

[6] See Reiswig v. Dept’ of Corporations for the State of California, 50 Cal.Rptr.3d 386 (Oct. 27, 2006).

[7] See, e.g., Gary Plastic Packaging v. Merrill Lynch, 903 F.2d 176 (2d Cir. 1990); Safeway Portland Employees' Federal Credit Union v. C.H. Wagner & Co., 501 F. 2d 1120 (9th Cir. 1974).

[8] Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir. 1994).

[9] SEC v. SG Ltd., 265 F.3d 42, 49 (1st Cir. 2001).

[10] Long v. Shultz Cattle Co., 881 F.2d 129, 140–41 (5th Cir. 1989).

[11] Revak, 18 F.3d at 88

[12] Compare SEC v. Life Partners, Inc.,
87 F.3d 536, 546-48(D.C. Cir. 1996), rehearing denied 102 F.3d 587
(holding that pre-purchase efforts alone do not create an expectation of
profits to be derived from the efforts of others) with SEC v. Mutual Benefits Corp.,
408 F.3d 737, 743 (11th Cir. 2005) (concluding that significant
pre-purchase efforts can create an expectation of profits to be derived
from the efforts of others).

[13] See Commission Interpretation Regarding Standard of Conduct for Investment
Advisers, Release No. IA-5248, Fed. Reg. No. 2019-12208, 2 (July 12,
2019), available at
https://www.sec.gov/files/rules/interp/2019/ia-5248.pdf.

[14] Sale and Distribution of Whisky Warehouse Receipts, Securities Act Release No. 5018, 34 Fed. Reg. 18,160 (Nov. 4, 1969).

[15]Offers and Sales of Condominiums or Units in a Real Estate Development,
Sec. Act Rel. 5347, 38 Fed. Reg. 1735 (Jan. 4, 1973), available at
https://www.sec.gov/files/rules/interp/1973/33-5347.pdf.