{"id":3141,"date":"2024-08-08T12:00:11","date_gmt":"2024-08-08T16:00:11","guid":{"rendered":"https:\/\/journals.law.harvard.edu\/jlpp\/?p=3141"},"modified":"2025-12-20T15:06:04","modified_gmt":"2025-12-20T19:06:04","slug":"problems-with-rulemaking-by-district-court-enforcement-action-the-secs-improper-cryptocurrency-regulation-eric-wessan-phil-pillari","status":"publish","type":"post","link":"https:\/\/journals.law.harvard.edu\/jlpp\/problems-with-rulemaking-by-district-court-enforcement-action-the-secs-improper-cryptocurrency-regulation-eric-wessan-phil-pillari\/","title":{"rendered":"Problems with Rulemaking by District Court Enforcement Action: the SEC’s Improper Cryptocurrency Regulation – Eric Wessan & Phil Pillari"},"content":{"rendered":"\n
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Problems with Rulemaking by District Court Enforcement Action: the SEC\u2019s Improper Cryptocurrency Regulation<\/h2>\n\n\n\n

Eric Wessan and Phil Pillari*<\/a><\/h3>\n\n\n\n

Introduction<\/h2>\n\n\n\n

Cryptocurrencies have become a vibrant part of the global economy. Unsurprisingly, the United States is the global leader in developing and advancing cryptocurrency and blockchain technology. But as with any new technology, the rise and prominence of cryptocurrencies create both opportunities and challenges. Some of those challenges are regulatory in nature. As States, the federal government, and even many in the cryptocurrency industry agree, some regulations to ensure safety and protect consumers are necessary.<\/p>\n\n\n\n

Yet an increasingly important question is: Who should be regulating? States or Congress could assign roles to various actors in our federalist system to ensure safe continued use of cryptocurrencies. Instead, the SEC has decided, without Congressional authorization, that regulating cryptocurrencies is its job\u2014and has decided to take on that new role without following the Administrative Procedure Act.<\/p>\n\n\n\n

Rather than going through notice-and-comment rulemaking, the SEC has taken a new approach\u2014rulemaking by district court enforcement action. Through that process, the SEC seeks to set judicial precedent adopting its view so that it could create new law without facing the normal adversarial testing that would come through traditional notice-and-comment rulemaking. In so doing, the SEC has saddled many tech startups with prohibitively expensive lawsuits and then forced them to bite their tongues through neither-admit-nor-deny consent decrees that make it impossible for the target of the action to defend itself after the fact.<\/p>\n\n\n\n

For example, in Securities and Exchange Commission v. SafeMoon LLC<\/em>,[1]<\/a> the SEC went after SafeMoon, a cryptocurrency token not connected with any business. The SEC never alleges that SafeMoon\u2019s token was a stock by another name\u2014it repeatedly uses the term \u201ctoken,\u201d and its only allegation for why the token satisfies Howey<\/em> is that SafeMoon investors \u201cshared equally in price increases[] or together suffered price decreases.\u201d[2]<\/a> Adopting that standard for defining an investment contract would give the SEC the right to regulate virtually any commodity that changes value.<\/p>\n\n\n\n

This is not a one-off for the SEC. The SEC website lists the dozens of enforcement actions the agency has brought against cryptocurrency sellers without tying the cryptocurrency tokens to shares in a business.[3]<\/a> Perhaps the SEC\u2019s vigor in choosing to regulate cryptocurrencies without following the APA\u2019s requirements makes sense: the SEC is acting far outside its assigned regulatory role. Any move toward rulemaking would draw scrutiny for the SEC\u2019s attempted ultra vires<\/em> expansion. And especially with the Supreme Court\u2019s renewed skepticism of free-ranging federal agencies acting beyond their statutory authority,[4]<\/a> the SEC may realize that such rulemaking would be short-lived\u2014assuming it survived a pre-enforcement challenge at all.<\/p>\n\n\n\n

The challenges that have risen along with cryptocurrencies’ surge in popularity are varied and complex. But almost every interested party\u2014save the SEC itself\u2014agrees that the SEC has no business treating cryptocurrencies as investment contracts under the Securities Act.[5]<\/a><\/p>\n\n\n\n

Compounding its problems, the SEC\u2019s conduct\u2014rulemaking by district court enforcement action\u2014flouts the APA. Even the SEC has long acknowledged that cryptocurrencies are not investment contracts subject to their oversight. But rather than explain why it changed its mind, the agency has ignored the basic requirements of reasoned decision-making for its arbitrary and capricious campaign of scorched earth litigation.[6]<\/a><\/p>\n\n\n\n

The SEC\u2019s actions do not adequately consider their consequences\u2014potential preemption of State consumer protection laws leaving citizens without defense from predatory scammers. The SEC is not shy about claiming preemptive effect of its regulations\u2014nor will those who States seek to pursue be shy in contending that States no longer have a proper role in a field occupied by the SEC.<\/p>\n\n\n\n

The federal courts should stop the SEC\u2019s egregious regulatory overreach and hold that garden variety cryptocurrencies are not investment contracts under the Securities Act of 1934. In Part I, we discuss the basics of cryptocurrencies. In Part II, we make two overarching arguments. The first (in Section II.A) is that the major questions doctrine and federalism canons require a clear statement because the SEC is entering a domain it has never regulated before and because the SEC is asserting authority over a large swath of the American economy. The second (in Section II.B) is that ordinary cryptocurrencies are not investment contracts under Howey<\/em>. Not only are ordinary cryptocurrencies not contracts (much less investment<\/em> contracts), but they do not satisfy any of the three prongs of the traditional Howey<\/em> test. In Part III, we provide concluding remarks.<\/p>\n\n\n\n

I. Background<\/h2>\n\n\n\n

A. A Primer on cryptocurrency<\/h3>\n\n\n\n

Cryptocurrencies started to become popular \u201cin 2008, . . . with the deployment of Bitcoin and the blockchain ledger.\u201d[7]<\/a> \u201cCryptocurrency is any form of currency that only exists digitally.\u201d[8]<\/a> Cryptocurrencies usually do not have a \u201ccentral issuing system or regulating authority.\u201d[9]<\/a> Instead, they rely on decentralized systems called \u201cblockchains\u201d that maintain records of the transactions and provide the code that underlies each cryptocurrency.[10]<\/a><\/p>\n\n\n\n

\u201cA blockchain is a digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network.\u201d[11]<\/a> \u201cA cryptocurrency coin [(or token)] is a coin built on its native blockchain.\u201d[12]<\/a> Coins can either be \u201cfungible, meaning\u201d the tokens are all identical and can be exchanged for each other, \u201cor non-fungible, meaning each token is unique and carries a different value.\u201d[13]<\/a><\/p>\n\n\n\n

\u201cBitcoin was created to eliminate the need for a central monetary authority to monitor, verify and approve transactions\u201d; it does this by using a network on which people can mine Bitcoin \u201cusing software to solve mathematical puzzles.\u201d[14]<\/a> Cryptocurrencies are popular with scammers and other criminals because they can be difficult to track.[15]<\/a> And the recent FTX scandal should teach observers that the SEC oversight may not prevent certain fraudulent cryptocurrencies from defrauding less informed investors.<\/p>\n\n\n\n

B. The Major Questions Doctrine<\/h3>\n\n\n\n

When an agency asserts newly found authority to regulate areas of broad \u201ceconomic and political significance,\u201d courts should \u201chesitate before concluding that Congress meant to confer such authority.\u201d[16]<\/a> The major questions doctrine requires Congress to \u201cspeak clearly when authorizing an agency to exercise powers of vast economic and political significance.\u201d[17]<\/a> After all, \u201c[e]xtraordinary grants of regulatory authority are rarely accomplished through modest words, vague terms, or subtle devices.\u201d[18]<\/a><\/p>\n\n\n\n

Major questions cases tend to have several characteristics in common. First<\/em>, major questions cases involve agencies asserting authority over large swaths of the American population or economy.[19]<\/a> Second<\/em>, major questions cases tend to involve agencies trying to assert power in areas outside their expertise and that they had never previously regulated.[20]<\/a> Third<\/em>, major questions cases tend to involve an agency settling a national debate through its rulemaking authority.[21]<\/a><\/p>\n\n\n\n

II. Cryptocurrencies are not investment contracts.<\/h2>\n\n\n\n

Courts should find that cryptocurrencies are not investment contracts subject to the SEC regulation under the Securities Act for two fundamental reasons. First<\/em>, the SEC\u2019s attempted arrogation of authority is a major question and violates the federalism canon. The SEC does not have clear congressional authorization to treat cryptocurrencies like investment contracts. Second<\/em>, ordinary cryptocurrencies do not satisfy Howey<\/em>\u2019s test. Although there are some investment vehicles that satisfy Howey<\/em> and are labeled cryptocurrencies, that is because those so-called cryptocurrencies are investment contracts by a different name. The label should not matter in determining whether a financial instrument is an investment contract under the Securities Act.<\/p>\n\n\n\n

A. The Major Questions Doctrine and federalism canon foreclose the SEC\u2019s ability to regulate cryptocurrencies.<\/h3>\n\n\n\n

1. The SEC regulating cryptocurrencies raises the major questions doctrine.<\/h4>\n\n\n\n

The SEC\u2019s decision to regulate cryptocurrencies has all the hallmarks of a major questions case. First<\/em>, the SEC is trying to regulate massive portions of the economy. The cryptocurrency industry is worth \u201cmore than a trillion dollars,\u201d and \u201cits daily trading volume is in the tens of billions of dollars.\u201d[22]<\/a> There are more than $450 billion in Bitcoin in circulation alone.[23]<\/a> The industry has created \u201chundreds of thousands of new jobs,\u201d and cryptocurrencies have the potential to take the economy to places it has never been before.[24]<\/a> Second<\/em>, the SEC has never asserted authority over cryptocurrencies. Even though cryptocurrencies have been around for much of two decades,[25]<\/a> the SEC did not start taking enforcement actions against cryptocurrency exchanges until 2022.[26]<\/a> Third<\/em>, the SEC is trying to stop a debate that has raged in the law reviews for years over what Congress can or should do to regulate cryptocurrencies. But Congress has the responsibility to assert its authority to control the money supply in interstate commerce.[27]<\/a> And Congress has never tasked the SEC with doing so through rulemaking by district court enforcement action.<\/p>\n\n\n\n

Because this case is a quintessential major questions case, the SEC must demonstrate it has a clear congressional authorization to regulate cryptocurrencies.<\/p>\n\n\n\n

2. The SEC\u2019s attempted regulation implicates the federalism canon.<\/h4>\n\n\n\n

The SEC\u2019s attempt to regulate cryptocurrencies \u201cwould upset the usual constitutional balance of federal and state powers,\u201d so \u201cfederal courts [must] be certain of Congress\u2019 intent before finding that federal law overrides this balance.\u201d[28]<\/a><\/p>\n\n\n\n

Consumer protection is uniquely the States\u2019 domain. Garden variety fraud is a state law cause of action.[29]<\/a> Meanwhile, States have enacted a bevy of laws that bar unfair or unconscionable trade practices.[30]<\/a> But federal securities law preempts state consumer protection law in many instances.[31]<\/a> Bad faith actors will almost assuredly argue that the SEC\u2019s treatment of cryptocurrency scams precludes any state-level enforcement actions against them. So, the SEC\u2019s foray into consumer protection threatens to tear down States\u2019 delicately balanced statutory schemes and common law causes of action. And it risks not only upsetting any given State\u2019s approach to regulation but also preempting those regulations.<\/p>\n\n\n\n

Because the SEC is trying to intrude on an area of the law that is uniquely within the purview of the States, it must point to \u201cunmistakably clear\u201d language authorizing it to do so.[32]<\/a> And it cannot.<\/p>\n\n\n\n

3. No statute clearly authorizes the SEC to regulate the sale of cryptocurrencies.<\/h4>\n\n\n\n

No one contests that the SEC has general authority to prosecute people for engaging in securities fraud.[33]<\/a> But general language is not enough to overcome a clear statement rule. For example, the Supreme Court in Atascadero<\/em> refused to hold California waived its sovereign immunity, even though the California Constitution gave its citizens the general right to sue the State.[34]<\/a> And the Court in Gregory<\/em> refused to strike down Missouri\u2019s age limits for judges, even though the law banning age discrimination applied to the States.[35]<\/a><\/p>\n\n\n\n

What is more, clear statement rules like the major questions doctrine and the federalism canon prevent Congress from \u201chid[ing] elephants in mouseholes.\u201d[36]<\/a> Here, the Securities Act\u2019s definition of a \u201csecurity\u201d is long and includes several dozen different types of investment vehicles.[37]<\/a> The word \u201cinvestment contract\u201d is buried in the middle of that lengthy definition.[38]<\/sup><\/a> To read the Securities Act and find that Congress allowed the SEC to regulate cryptocurrencies as investment contracts would be finding a mammoth in that mousehole. And the SEC recognizes that, which is why it has proceeded on this ad hoc<\/em> basis of seriatim<\/em> enforcement actions rather than through rulemaking that would exceed its authority.<\/p>\n\n\n\n

B. Precedent forecloses the SEC\u2019s position.<\/h3>\n\n\n\n

Applying longstanding precedent to the Securities Act shows that cryptocurrencies are not investment contracts. The Supreme Court has explained that investment contracts must be a contract \u201cwhereby [(1)] a person invests his money in [(2)] a common enterprise\u201d (3) through which the investor would \u201cexpect profits solely from the efforts of the promoter or a third party.\u201d[39]<\/sup><\/a> A financial instrument meets Howey<\/em>\u2019s first prong only if the investor can make \u201ca voluntary investment choice.\u201d[40]<\/sup><\/a> A financial instrument meets Howey<\/em>\u2019s second prong only if \u201cthe fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties.\u201d[41]<\/sup><\/a> And a financial instrument meets Howey<\/em>\u2019s third prong only if someone other than the investor has \u201cmanagerial\u201d control that could \u201caffect the failure or success of the enterprise.\u201d[42]<\/sup><\/a><\/p>\n\n\n\n

If cryptocurrencies look like a strange fit for the Supreme Court\u2019s definition of an investment contract, it is because they are. When the average person thinks of investing in an \u201centerprise\u201d they think of investing in a business. That is why the Ninth Circuit held speculating in gold futures did not create an investment contract\u2014investing in a product involves reliance on the price of the underlying product, not someone\u2019s business acumen.[43]<\/sup><\/a> So too with cryptocurrencies; the value of a cryptocurrency has nothing to do with the success of a business and everything to do with the price of the underlying token. Since the investor is not investing in a business, it would be weird to hold that speculating in cryptocurrencies creates an investment contract within the SEC\u2019s jurisdiction.<\/p>\n\n\n\n

1. Cryptocurrency trading does not involve contracts under Howey<\/em>.<\/h4>\n\n\n\n

Howey<\/em>\u2019s test is often described as having three-prongs but there is also a fourth prong that the SEC\u2019s approach violates\u2014that is, that the financial instrument be a contract<\/em>.[44]<\/a> As one commentator has explained, \u201cspeculat[ing] on a global market\u201d will not involve investment contracts \u201cwithout any post-sale obligations undertaken by the seller.\u201d[45]<\/a> In other words, the \u201cmeeting of the minds\u201d that forms the backbone of American contract law, never happens when someone speculates in cryptocurrencies.[46]<\/a><\/p>\n\n\n\n

And that makes sense. Calling a stock a contract (and, by extension, an investment contract) is reasonable because there is a meeting of the minds. For example, an investor could pay Apple at an IPO in return for a share of stock representing a piece of the company\u2019s ownership. That investor understands Apple has a duty to maximize its value to its investors. But that agreement does not exist for cryptocurrencies. There is no one to call at Bitcoin Headquarters who can allow you to buy shares of Bitcoin in exchange for Bitcoin, Inc. maximizing shareholder value. Treating a Bitcoin like a share of Apple stock is a category error. Without an underlying agreement between the purchaser and the seller there is no meeting of the minds\u2014the fundamental requirement of a contract. That alone precludes calling cryptocurrencies investment contracts.<\/p>\n\n\n\n

2. Normal cryptocurrencies fail under Howey<\/em>, even assuming they involve a contract.<\/h4>\n\n\n\n

The preliminary problems take cryptocurrencies outside of Howey<\/em>\u2019s reach. But even if they did not, cryptocurrencies do not satisfy Howey<\/em>.<\/p>\n\n\n\n

First<\/em>, there is no investment under Howey<\/em>. \u201c[T]here are many reasons one would buy Bitcoin or Ethereum not as an investment; the common one being to transact anonymously.\u201d[47]<\/a> If the person buying the cryptocurrency does so to use it as currency, they are not investing. By way of analogy, although someone might buy Euros because they hope they will increase in value, another person might buy Euros to buy goods on a trip to Europe. That is not investing in Euros. So too here. The person buying cryptocurrency is not investing their money because the goal is to use the cryptocurrency to make purchases, not wait for it to increase in value.<\/p>\n\n\n\n

Second<\/em>, there is not necessarily a common enterprise when someone buys cryptocurrency. A cryptocurrency buyer\u2019s fortunes are not interwoven with an entity seeking an investment\u2014nobody is seeking an investment. Bitcoin is a currency that is designed to serve as a store of value and a way to make purchases. In that way Bitcoin is like other currencies, from the Swiss Franc to the British Pound Sterling. Just as those currencies are not businesses seeking an investment, many cryptocurrencies are not businesses seeking an investment, either.<\/p>\n\n\n\n

That makes sense given the reasons cryptocurrencies\u2019 value fluctuates. With most investments, the success of the business determines the value of a given security\u2014the value will increase during the good times and decrease during the bad times.[48]<\/a> But a cryptocurrency is not a business, so it does not increase or decrease in value based on whether the business is doing well or poorly. Instead, the value of a given cryptocurrency is simply whatever the next person in line is willing to pay for it. Put differently, someone investing in a business is betting on the company doing well. Someone \u201cinvesting\u201d in a cryptocurrency is betting on the willingness of other people to bet on the success of the cryptocurrency. As a result, the fortunes of the investor are not interwoven with or dependent upon the fortunes of the person seeking the investment.<\/p>\n\n\n\n

The SEC has argued that \u201cthe promoter[]\u201d of the cryptocurrency can serve as the person seeking the investment for Howey<\/em>\u2019s second prong,[49]<\/a> but that proves too much. For context, celebrities and social media influencers will promote a cryptocurrency the same way they might endorse a pair of headphones. But if that were sufficient to meet Howey<\/em>\u2019s second prong, then any investment advisor who recommends a specific investment would be enough, too.<\/p>\n\n\n\n

Congress did not want to turn a financial instrument into an investment contract simply because someone recommended that the investor buy it. What is more, it is unclear how the influencer\u2019s success is interwoven with the investor\u2019s success. The influencer would (ostensibly) either receive a flat fee or a commission for the endorsement deal, while the investor\u2019s profit would fluctuate with the value of the cryptocurrency. Because the influencer\u2019s profits do not change with the investor\u2019s, their success is not interwoven with the investor\u2019s success under Howey<\/em>.<\/p>\n\n\n\n

Indeed, the case the SEC mainly relies on shows why that argument must fail. In Securities and Exchange Commission v. International Loan Network, Inc.<\/em>, a group of people was found to have illegally sold unregistered securities.[50]<\/a> But the unregistered security there was shares in a business, and the promoters of that business were the owners of that business. Rather than being a third-party influencer, the people seeking the investment were the ones who stood to profit off the investment.<\/p>\n\n\n\n

Third<\/em>, the profits do not come solely through the acts of a third party. There is no business, so for many cryptocurrencies no one exercises managerial control over the cryptocurrency.[51]<\/a> In those cases, the token\u2019s seller and buyer set the price, even if those cryptocurrencies have a management structure. After all, buying a cryptocurrency is often a bet that other people will be willing to buy that currency later. And a cryptocurrency purchaser can influence whether people are willing to buy his tokens later by changing the price at which he is willing to sell the token. But those pricing decisions are made by the cryptocurrency owners, not a business management team.<\/p>\n\n\n\n

C. Cases finding cryptocurrencies to be investment contracts are unpersuasive.<\/h3>\n\n\n\n

The District of Connecticut found that the cryptocurrency Paycoin was an investment contract, but that is because Paycoin was a stock.[52]<\/a> The token represented shares in the defendant company.[53]<\/a> And no one disputes that a stock is an investment contract under Howey<\/em>. That is also why the Southern District of New York\u2019s reasoning in Terraform Labs <\/em>and Kik Interactive <\/em>is unhelpful\u2014in both cases, a company was selling stocks by a different name.[54]<\/a> A company cannot avoid the SEC regulation through clever attempts at labeling.<\/p>\n\n\n\n

That distinction sounds technical, but it matters. The tokens at issue in those cases were all investments in a company. The fluctuations in the tokens\u2019 values were really fluctuations in the companies\u2019 values. That differs from the ordinary cryptocurrency. In those circumstances, the SEC is not trying to regulate the purchase and sale of traditional stocks or shares in a company. Rather, the SEC is trying to regulate cryptocurrencies generally, not tokens connected to the value of the company that issued the cryptocurrencies.<\/p>\n\n\n\n

To be clear, the SEC is not powerless when someone uses the words \u201ccryptocurrency\u201d or \u201cblockchain\u201d to try to launder what would otherwise be an investment contract into a cryptocurrency. Howey<\/em> \u201cis to be applied in light of \u2018the substance\u2014the economic realities of the transaction\u2014rather than the names that may have been employed by the parties.\u2019\u201d[55]<\/a> So, the SEC\u2019s authority does not extend to all \u201ccryptocurrencies\u201d\u2014it only applies to tokens that also meet the traditional definition of investment contracts.<\/p>\n\n\n\n

Indeed, the nuance in this discussion highlights why the SEC\u2019s position is such a gross overreach. Like the Covid pandemic, the challenges of cryptocurrencies require \u201ca delicate exercise of\u201d regulatory power.[56]<\/a> But \u201crather than a delicately handled scalpel, the [the SEC\u2019s position] is a one-size-fits-all sledgehammer that makes hardly any attempt to account for differences in\u201d the financial instruments it is trying to regulate.[57]<\/a><\/p>\n\n\n\n

Conclusion<\/h2>\n\n\n\n

The SEC\u2019s decision to engage in a scorched earth campaign of rulemaking by district court enforcement action on cryptocurrencies is a decision without a basis in law. And the repercussions are most likely to be felt by States\u2014States that do not appreciate intrusions on their sovereign police powers. Even worse, many of those effects are likely both unforeseen by the SEC and quite foreseeable\u2014had the SEC chosen the more appropriate path of explaining itself through rulemaking. Beyond the effect on States, the SEC\u2019s unexplained arrogation of authority risks stepping far beyond the bounds that Congress authorized. And so, the SEC should tread carefully. An aggressive regime of enforcement may spur the Courts to assess the SEC\u2019s actions under the many tools at their disposal to curtail instances of federal overreach.<\/p>\n\n\n\n

*<\/a> Eric Wessan is the Solicitor General of Iowa. He received his Bachelor\u2019s Degree and J.D. from the University of Chicago. Phil Pillari is a J.D. candidate at Northwestern University, and he received his Bachelor\u2019s Degree from Ramapo College of New Jersey. The views expressed in this article are those of the authors alone and not those of any employer or government agency.<\/p>\n\n\n\n

[1]<\/a> 1:23-cv-08138 (E.D.N.Y.).<\/p>\n\n\n\n

[2]<\/a> Compl. \u00b6 43, SEC v. SafeMoon LLC, 1:23-cv-08138 (E.D.N.Y. Nov. 1, 2023).<\/p>\n\n\n\n

[3]<\/a> SEC, Crypto Assets and Cyber Enforcement Actions<\/em>, https:\/\/perma.cc\/5SGL-TF3Y; see<\/em> also<\/em> In re <\/em>Wines, SEC No. 3-21682 (2023) (involving cryptocurrency token that was functionally equivalent to fiat currency); SEC v. DeSalvo, 2:23-cv-08092 (D.N.J.).<\/p>\n\n\n\n

[4]<\/a> See<\/em>, e.g.<\/em>, Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 2262 (2024) (holding that courts must \u201cexercise independent judgment on questions of law\u201d).<\/p>\n\n\n\n

[5]<\/a> See<\/em>, e.g.<\/em>, CFTC, The CFTC\u2019s Role in Monitoring Virtual Currencies<\/em> (last accessed on July 25, 2024), available at https:\/\/www.cftc.gov\/digitalassets\/index.htm; Jacob Bogage, House votes to make CFTC main crypto regulator, a win for the industry<\/em>, Washington Post (May 22, 2024); Eleanor Terrett, Coinbase sues SEC, FDIC for information relating to crypto regulation<\/em>, FoxBusiness (June 27, 2024).<\/p>\n\n\n\n

[6]<\/a> Cf. <\/em>Grayscale Investments, LLC v. SEC, 82 F.4th 1239, 1249 (D.C. Cir. 2023) (finding arbitrary and capricious differential treatment of similar cryptocurrency products).<\/p>\n\n\n\n

[7]<\/a> Paul Andersen, Note and Comment, Will the FTX Collapse Finally Force U.S. Policymakers to Wake Up?: Regulatory Solutions for Cryptocurrency Tokens Not Classified As Securities Under the Supreme Court\u2019s <\/em>Howey Analysis<\/em>, 18 J. Bus. & Tech. L. 251, 257 (2023).<\/p>\n\n\n\n

[8]<\/a> Id.<\/em> (quotation marks omitted).<\/p>\n\n\n\n

[9]<\/a> Id.<\/em> (footnotes omitted).<\/p>\n\n\n\n

[10]<\/a> Id.<\/em> at 257\u201358 (footnote omitted).<\/p>\n\n\n\n

[11]<\/a> Id.<\/em> at 258 (quotation marks omitted).<\/p>\n\n\n\n

[12]<\/a> Id.<\/em><\/p>\n\n\n\n

[13]<\/a> Id.<\/em> (footnotes omitted).<\/p>\n\n\n\n

[14]<\/a> Brett Hemenway Falk & Sarah Hammer, A Comprehensive Approach to Crypto Regulation<\/em>, 25 U. Pa. J. Bus. L. 415, 419 (2023).<\/p>\n\n\n\n

[15]<\/a> See<\/em> Chelsea Pieroni, La Crypto Nostra: How Organized Crime Thrives in the Era of Cryptocurrency<\/em>, 20 N.C.J.L. & Tech. Online 111, 133\u201334 (2018).<\/p>\n\n\n\n

[16]<\/a> West Virginia v. EPA, 597 U.S. 697, 721 (2022) (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159\u201360 (2000)) (quotation marks omitted).<\/p>\n\n\n\n

[17]<\/a> Ala. Ass\u2019n of Realtors v. Dep\u2019t Health & Hum. Servs., 594 U.S. 758, 764 (2021) (per curiam) (quoting Util. Air Regul. Grp. v. EPA, 573 U.S. 302, 324 (2014)) (quotation marks omitted).<\/p>\n\n\n\n

[18]<\/a> West Virginia<\/em>, 597 U.S. at 723 (quoting Whitman v. Am. Trucking Ass\u2019ns, 531 U.S. 457, 468 (2001)) (cleaned up).<\/p>\n\n\n\n

[19]<\/a> See, e.g.<\/em>, Nat\u2019l Fed. Indep. Bus. v. OSHA, 595 U.S. 109, 117 (2022) (per curiam) (applying the doctrine to OSHA\u2019s vaccine mandate because it covered over 84 million people); West Virginia<\/em>, 597 U.S. at 723\u201324 (EPA\u2019s attempt to regulate carbon emissions was subject to major questions scrutiny because the agency tried to assert authority over almost the entire economy); Ala. Realtors<\/em>, 594 U.S. at 764 (invoking the major questions doctrine when evaluating the CDC\u2019s eviction moratorium because it covered \u201c[a]t least 80% of the country, including between 6 and 17 million tenants at risk of eviction\u201d).<\/p>\n\n\n\n

[20]<\/a> See, e.g.<\/em>, Louisiana v. Biden, 55 F.4th 1017, 1029\u201330 (5th Cir. 2022) (holding unconstitutional the federal government\u2019s vaccine mandate for government contractors because the Procurement Act had never been used to regulate public health issues); NFIB<\/em>, 595 U.S. at 117 (a workplace safety agency trying to regulate public health for the first time); Ala. Realtors<\/em>, 594 U.S. at 764 (the CDC, a public health agency, regulating landlord-tenant relationships).<\/p>\n\n\n\n

[21]<\/a> See, e.g.<\/em>, Texas v. Nuclear Reg. Comm\u2019n, 78 F.4th 827, 844 (5th Cir. 2023) (applying the doctrine to rules governing nuclear waste disposal\u2014a \u201chotly politically contested\u201d issue \u201cfor over half a century\u201d); Biden v. Nebraska, 600 U.S. 477, 504 (2023) (hundreds of billions of dollars in student debt forgiveness that was near constant Congressional debate); West Virginia<\/em>, 597 U.S. at 701 (regulation of carbon emissions that would resolve \u201chow much coal-based\u201d pollution the government would tolerate \u201cover the coming decades\u201d).<\/p>\n\n\n\n

[22]<\/a> Compl. \u00b6 29, Lejilex v. SEC, 4:24-cv-00168 (N.D. Tex. Feb 21, 2024).<\/p>\n\n\n\n

[23]<\/a> Id.<\/em><\/p>\n\n\n\n

[24]<\/a> Id.<\/em> \u00b6 30.<\/p>\n\n\n\n

[25]<\/a> Andersen, supra <\/em>note 7, at 257.<\/p>\n\n\n\n

[26]<\/a> See<\/em> Compl. \u00b6 47, Lejilex<\/em>, supra<\/em>, note 22; see also<\/em> Util. Air Regul. Grp. v. EPA., 573 U.S. 302, 324 (2014) (noting that courts should be skeptical \u201c[w]hen an agency claims to discover in a long-extant statute an unheralded power to regulate \u2018a significant portion of the American economy\u2019\u201d (quoting Brown & Williamson<\/em>, 529 U.S. at 159)).<\/p>\n\n\n\n

[27]<\/a> See<\/em> U.S. Const. art. I, \u00a7 8, cls. 3, 5.<\/p>\n\n\n\n

[28]<\/a> Gregory v. Ashcroft, 501 U.S. 452, 460 (1991) (quoting Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 243 (1985)) (quotation marks omitted).<\/p>\n\n\n\n

[29]<\/a> See, e.g.<\/em>, Bowden v. Med. Ctr., Inc., 845 S.E.2d 555, 563 n.10 (Ga. 2020); Koury v. Ready, 911 So. 2d 441, 445 (Miss. 2005); Beeck v. Aquaslide \u2018N\u2019 Dive Corp., 350 N.W.2d 149, 155 (Iowa 1984).<\/p>\n\n\n\n

[30]<\/a> See, e.g.<\/em>, Iowa Code \u00a7 537.5108; Mo. Rev. Stat. \u00a7 407.020.1; N.J. Stat. Ann. \u00a7 56:8-2.<\/p>\n\n\n\n

[31]<\/a> See <\/em>15 U.S.C. \u00a7 77r.<\/p>\n\n\n\n

[32]<\/a> Gregory<\/em>, 501 U.S. at 460 (quoting Atascadero<\/em>, 473 U.S. at 242).<\/p>\n\n\n\n

[33]<\/a> See<\/em> 15 U.S.C. \u00a7 78u.<\/p>\n\n\n\n

[34]<\/a> 473 U.S. at 241.<\/p>\n\n\n\n

[35]<\/a> 501 U.S. at 466\u201347.<\/p>\n\n\n\n

[36]<\/a> Whitman<\/em>, 531 U.S. at 468.<\/p>\n\n\n\n

[37]<\/a> 15 U.S.C. \u00a7 77b.<\/p>\n\n\n\n

[38]<\/a> See id.<\/em><\/p>\n\n\n\n

[39]<\/a> SEC v. W.J. Howey Co., 328 U.S. 293, 298\u201399 (1946).<\/p>\n\n\n\n

[40]<\/a> Matassarin v. Lynch, 174 F.3d 549, 561 (5th Cir. 1999).<\/p>\n\n\n\n

[41]<\/a> SEC v. Koscot Interplanetary, Inc., 497 F.2d 473, 478 (5th Cir. 1974) (quoting SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 n.7 (9th Cir. 1973)).<\/p>\n\n\n\n

[42]<\/a> SEC v. Arcturus Corp., 928 F.3d 400, 409\u201310 (5th Cir. 2019) (quoting Williamson v. Tucker, 645 F.2d 404, 418 (5th Cir. 1981)).<\/p>\n\n\n\n

[43]<\/a> See<\/em> SEC v. Belmont Reid & Co., 794 F.2d 1388, 1391 (9th Cir. 1986).<\/p>\n\n\n\n

[44]<\/a> See, e.g.<\/em>, Howey<\/em>, 328 U.S. at 298\u201399.<\/p>\n\n\n\n

[45]<\/a> Matt Donovan, Note, Ripple Effect: The SEC\u2019s Major Questions Doctrine Problem<\/em>, 91 Fordham L. Rev. 2309, 2319 (2023).<\/p>\n\n\n\n

[46]<\/a> See, e.g.<\/em>, Peak v. Adams, 799 N.W.2d 535, 544 (Iowa 2011); Chisholm v. Ultima Nashua Indus. Corp., 834 A.2d 221, 225 (N.H. 2003); Milner v. Milner, 360 S.W.3d 519 (Tex. App. 2010), aff\u2019d,<\/em> 361 S.W.3d 615 (Tex. 2012); see also<\/em> id.<\/em> at 2340 (noting that the average secondary buyer\u2014that is, someone who buys cryptocurrency off an exchange\u2014\u201chas no legal relationship\u201d with whoever invented that coin).<\/p>\n\n\n\n

[47]<\/a> Justin Henning, Note, The <\/em>Howey Test: Are Crypto-Assets Investment Contracts?<\/em>, 27 U. Miami Bus. L. Rev. 51, 65 (2018).<\/p>\n\n\n\n

[48]<\/a> See generally, e.g.<\/em>, Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005).<\/p>\n\n\n\n

[49]<\/a> See<\/em> Jerry W. Markham, Securities and Exchange Commission vs. Kim Kardashian, Cryptocurrencies and the \u201cMajor Questions Doctrine\u201d<\/em>, 14 Wm. & Mary Bus. L. Rev. 515, 540 (2023) (quoting SEC guidance).<\/p>\n\n\n\n

[50]<\/a> 968 F.2d 1304, 1305 (D.C. Cir. 1992).<\/p>\n\n\n\n

[51]<\/a> See<\/em> Arcturus<\/em>, 928 F.3d at 409\u201310.<\/p>\n\n\n\n

[52]<\/a> See<\/em> Audet v. Fraser, 605 F. Supp. 3d 372, 394 (D. Conn. 2022).<\/p>\n\n\n\n

[53]<\/a> Id.<\/em> at 381.<\/p>\n\n\n\n

[54]<\/a> SEC v. Terraform Labs Pte. Ltd., 2023 WL 4858299, at *13 (S.D.N.Y. July 31, 2023); SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169, 177\u201378 (S.D.N.Y. 2020).<\/p>\n\n\n\n

[55]<\/a> Int\u2019l Bhd. of Teamsters, Chauffeurs, Warehousemen & Helpers of Am. v. Daniel, 439 U.S. 551, 558 (1979) (quoting United Hous. Found., Inc. v. Forman, 421 U.S. 837, 851\u201352 (1975)).<\/p>\n\n\n\n

[56]<\/a> BST Holdings, LLC v. OSHA, 17 F.4th 604, 612 (5th Cir. 2021) (quoting Pub. Citizen Health Rsch. Grp. v. Auchter, 702 F.2d 1150, 1155 (D.C. Cir. 1983)) (cleaned up).<\/p>\n\n\n\n

[57]<\/a> Id.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Problems with Rulemaking by District Court Enforcement Action: the SEC\u2019s Improper Cryptocurrency Regulation Eric Wessan and Phil Pillari* Introduction Cryptocurrencies have become a vibrant part of the global economy. Unsurprisingly, the United States is the global leader in developing and advancing cryptocurrency and blockchain technology. But as with any new technology, the rise and prominence of cryptocurrencies create both opportunities and challenges. Some of those challenges are regulatory in nature. As States, the federal government, […]<\/p>\n","protected":false},"author":147,"featured_media":1470,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[72],"tags":[7,112,113],"class_list":["post-3141","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-per-curiam","tag-administrative-law","tag-cryptocurrency","tag-sec"],"jetpack_featured_media_url":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-content\/uploads\/sites\/90\/2012\/07\/cropped-HLS_JOPP_Logo-1.png","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/peZSiL-OF","_links":{"self":[{"href":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-json\/wp\/v2\/posts\/3141","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-json\/wp\/v2\/users\/147"}],"replies":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-json\/wp\/v2\/comments?post=3141"}],"version-history":[{"count":0,"href":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-json\/wp\/v2\/posts\/3141\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-json\/wp\/v2\/media\/1470"}],"wp:attachment":[{"href":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-json\/wp\/v2\/media?parent=3141"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-json\/wp\/v2\/categories?post=3141"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/journals.law.harvard.edu\/jlpp\/wp-json\/wp\/v2\/tags?post=3141"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}