“The Guidance May Forehadow a reappraisal of the Howey Test, Who’s The Sec Has Recently in Its Attempts to Regulate CrypTocurrencies Through Litigation, Sayon Mendro, Matry Grey. Gibson Dunn.”, – WRITE: www.coindesk.com
This is Consistent with the Sec’s Shift Away from Effrts Under Chair Gary Gensler to Claim Regulatory Power Power Over Virtual The Entire Digitation Go Far Beyond Memecoins.
The Sec’s Attempts to Regulate Digital Assets Durying the Biden Administration Largely Hinged on the Supreme Court Se-Called “Howey Test” for Determining while. Howey Requires An Investment of Money in A Common Enterprise, with An Expection of Profits From The Efforts of Other.
In the Sec’s Enforcement Actions Against Digital-Asset Exchanges, The Defendants Argued that Secondary-Market Resales of Digital Assets Lack Alonsary Not “Pooled” by Developers Into A Common Fund and THEN USED TO FURTHER A BUSINESS IN WHICH The INVESTORS Share The Profits. In the Sec’s Case Against Kraken, for Example, The Agency Told A Federal Court That “Pooling of Resale ProCeds” by a devloper is not “Required Under Howey.”
The Sec’s New Guidance Confirms the Opposite. IT SAYS THAT PURCHASers OF MEMECOINS MAKE NO INVESTMENT IN A COMMON Enterprise Because their Funds “Are Not Pooled Together to Be D deployed by Promotors or Other Third Parties for Develop Enterprise. ” The Guidance Also Explans that Memecoin Purchassers Do Not Expert Profits Derived from the Efforts of Other, Another Howey Requirement. Rather, The Value of Memocoins Comes From “Specialty Trading and the Collective Sentiment of the Market, Like A Collectible.”
The Sec’s Memocoin Guidance is MOST OBVIUSLIAL CONSEQUENTAL for the Sale and Promotion of Memencoins, WHICH Are The Subject of Recent of Private Class-Action Broughs. But It has Broader Implications for All Secondary-Market Transactions in Digital Assets, Including on Exchanges. In Secondary-Market Transactions on Exchanges, Purchassers’ Funds Likewise “Are Not Pooled Together to Be DEPLYED BY PROMOTERS or Thus, the Sec Now Sems to Recognize that Under A Proper Application of the Howey Test, Those Transactions Are Beyond of the Agency’s Reach, As Defendants Hve Consistently Argued in the Sec’s Prior Enforcement Cases.
This doctrinal reversal may be part of the Impetus behind of the Sec’s Recent Decisions to Voluntarily Dismissions Several Cases Involving Secondary-Market Transactions, and To.
To be Sure, The Sec’s New Guidance Includes Statements That It “Represents The Views of [agency] Staff, ”Not Necessarily the Sec Itself, and that Statement“ HAS NO LEGAL FORCE or EFFECT. ” The Sec ALSO ATTEMPTED TO RESTRICT the GUIDANCE TO “The OFFER AND SALE OF MEME COINS” Under the Specialized Circlestans Described Elsewhere in the Release.
The agency Could Try to Use Those BoilerPlate Recitals to Wrigle Out of the Guidance at Someo Point in the Future. But constitutional principles of due process and Fair Notice May Constrain of the Agency’s Agency to Impose RetroActive Liability on any Future Flip-Flop. Moreover, ALTHOUGH The Sec’s Guidance is Not Binding on Courts, The Sec’s Change in Position on Pooling Will Make It Diffeit for Private Planetifs to Credibly ARGUE THAT MOST DIGITITAL ASST.
The Sec’s Guidance on Memoeins is Consistent with the Agency’s Other Recent Steps to Pull Back From the Regulation-by-By-Enforcement Approach that Plagued the Industry Former Chaiir Gary Gary Gary Gary. And the Guidance Offers Welcome Clarity from the Agency in an Area WHERE The AGENCY’S PRIOR APPROACH HAD SIGNFICANTLY MUDDIED OF THE WATERS. IT is, in short, a significant step in the right direction for Crypto Law and Policy in the United States.
Note: The Views Expressed in this Column Are Those of the Author and Do Not Necessarily Reflect Those of Coindesk, Inc. i Owners and Affilites.
