Mark T. Uyeda, SEC 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.
At The SEC: It Is Finally Spring, SEC Commissioner Hester M. Peirce
Thank you, Acting Chairman Uyeda and Commissioner Crenshaw. I am delighted to welcome everyone to the inaugural roundtable of the Spring Sprint Toward Crypto Clarity series. Thank you to our panelists, who bring years of experience and serious consideration of the topic at hand to the table. It is fitting that today’s panel takes place exactly two months after Acting Chairman Uyeda announced the formation of the Crypto Task Force and just as D.C. is brimming with signs of spring. Spring signifies new beginnings, and we have a new beginning here: a restart of the Commission’s approach to crypto regulation. The formation of the Crypto Task Force gave permission to staff in the building to work earnestly towards a workable framework for crypto regulation, and staff have responded with palpable enthusiasm. The enthusiasm in this room is also palpable, so let us seize the moment and have a meaningful conversation today.
This room is full of people—on the panel, on the Crypto Task Force, on the Commission staff, and in the audience—who are ready for sprint ahead. People have been talking, thinking, and writing about the issues with which we are now wrestling. The roundtable series will allow us to explore the issues collaboratively. I am reminded of a story my brother told me recently. He invited a friend over and walked him back to see a shed on his property that was in poor repair. “It’s not worth saving, is it?” he asked his friend. “Sure it is,” the friend who is quite handy replied, “Let’s get your tractor and haul in some lumber.” “But my tractor isn’t working at the moment,” said my brother. “OK, let’s fix it.” So that day they repaired the tractor and the shed with impressive alacrity
Today’s panelists have to get the tractor running—address definitional questions—so we can build the shed—design a sturdy and functional regulatory framework. They are as adept as my brother and his friend, so I have high hopes for what we can accomplish today.
To do this work well, we have to tackle some foundational questions about security status.
- What makes something a security?
- Is that status permanent, or might an asset start as a security and convert to a non-security, or vice versa?
- How does decentralization affect the analysis?
- Can we translate the characteristics of a security into a simple taxonomy that will cover the many different types of crypto assets that exist today and will exist in the future?
Thank you to everyone who made today’s roundtable possible. A lot of work went into making this happen. I look forward to the conversation and am happy to turn over the stage to our esteemed panelists and moderator, former SEC Commissioner Troy Paredes.
Source: SEC
