Gurbir S. Grewal, The SEC’s Director, Division of Enforcement, pointed out, at the April 3, 2024 “The SEC Speaks” event, that “in the decade since we brought our first crypto enforcement actions, our approach has been consistent, principled, and tethered to the federal securities laws and legal precedent. After all, every lawyer here knows what the test is to determine whether a crypto asset was offered and sold as an “investment contract,” and therefore a security: it’s the Howey test. It’s not the “essential ingredients” test, or the Beanie Baby test, or some other test that industry folks might like to create for themselves.”

He notes that “for years, the SEC has clearly and consistently applied Howey and its progeny to protect investors in the crypto space. We have applied it to the alleged facts in dozens of orders, complaints, and briefs. These are not secret analyses; they are public documents for the whole world to see.”

Of course, Grewal added, that doesn’t mean that all crypto products are offered as “investment contracts” and are therefore securities. “But it does mean that the analytical framework – the test – for whether something is an “investment contract” is the same whether we’re dealing with transactions involving crypto products or with transactions involving the many other kinds of offerings that courts have analyzed under Howey.”

Nevertheless, over the past decade, the SEC has confronted significant non-compliance and many, many creative attempts by market participants to avoid its jurisdiction, “with some claiming that we are making it up as we go or regulating by enforcement, and others arguing that we are recklessly exceeding our authorities.”

At the same time, he added, “we’ve been accused of picking winners and losers, stifling innovation, and driving crypto businesses to more favorable, foreign jurisdictions, wherever they may be. A decade’s worth of verbal gymnastics that are just a backhanded way of saying, ‘we want a different set of rules than those that apply to everyone else.’ A decade’s worth of arguments that have served as nothing more than a distraction from the very real issues and risks that the crypto markets present for the investing public.”

And most importantly, Grewal said, a decade’s worth of arguments that have been serially rejected in one way or another by court after court. “As we have consistently maintained, and as court after court has confirmed, the federal securities laws apply equally to everyone. You don’t get your own rules.”

These crypto enforcement actions have not been, and are not, without challenge, said Grewal. “Given the stakes and the resources available to our adversaries, they have been among the most hard fought that I’ve seen in my career. But I am incredibly proud of the perseverance of the staff, who push forward for one reason alone: because investor protection demands it.”

Grewal expressed his hope that, “after the latest in a long and growing string of courts affirming our authority to police the crypto markets, we can move past them and address the very real issues present in this industry that lead to elevated investor risk: fraud, lack of transparency, commingling of assets, conflicts of interest, and lack of oversight, to mention just a few.”

The SEC’s ability to do all of this work depends on trust and credibility. “The public must have confidence that we will hold bad actors accountable when they violate the securities laws regardless of who, or how powerful, they are. And the public, courts and the bar must all have confidence in the representations we make when we are advocating to protect investors. That also means if we fall short, we must acknowledge our mistakes and recommit ourselves to doing everything we can to never compromise that reservoir, as we recently have. “

But, Grewal concluded, “what we will not do is let any criticism that we may face overshadow the incredible work being done by the Enforcement Division on a daily basis on behalf of the investing public. Instead, we will embrace any scrutiny we face to highlight it.”