Reuters spoke with Gary DeWaal, special counsel and chair of Katten's Financial Markets and Regulation practice group, for a video report on the crypto industry’s current uncertainty regarding the circumstances under which a crypto asset might be considered a security and under the jurisdiction of the Securities and Exchange Commission.
Reuters references that this uncertainty has been prompted by the SEC's consistent citing of a 1946 Supreme Court Decision – SEC v. W.J. Howey without offering rules or meaningful guidance to help the industry navigate this issue.
"If folks are induced to invest money in a common enterprise with a reasonable expectation of profits through the efforts of others, the SEC will say that those indicia give rise to an investment contract and …that investment contract constitutes a security," Gary explained in describing the key tenets of Howey.
This uncertainty was heighted, according to Reuters, by a recent SEC civil enforcement action related to the listing of certain crypto assets for trading on Coinbase. In the enforcement action – which was filed against three individuals for allegedly trading on insider information related to the listing – the SEC claimed that nine of 25 crypto assets were securities. At the same time, the Department of Justice in a parallel criminal action said that all of the 25 crypto assets were cryptocurrencies. Cryptocurrencies are deemed commodities and under the oversight of the Commodity Futures Trading Commission in part and also various state and other federal regulators – but not the SEC, noted Reuters.
Yet there remains uncertainty in the market and among regulators.
Noting these differing approaches by the SEC and DOJ, Gary said the industry is "quite confused."
"People are hoping that the SEC will actually come up with guidance and not regulate this space by enforcement," he said.
"Are crypto assets securities?" Reuters, August 2, 2022