Featured Expert Contributor, Legal & Regulatory Challenges for Digital Assets
By Daniel S. Alter, a Shareholder in the New York, NY office of Murphy & McGonigle P.C.
A common criticism of Sigmund Freud is that he built a theory of the human psyche based largely upon experiences of the mentally ill. The U.S. Securities and Exchange Commission’s (SEC) approach to regulating crypto assets labors under a similar bias. The agency has developed a regulatory construct largely in response to a period of widespread abusive conduct in the digital markets. Although the SEC’s intervention was historically justified, it may be time to reexamine and refine that regulatory construct in ways that still protect investors but better promote innovation.
Two years back, when billions of dollars in initial coin offerings (ICOs) hit the market—many of which were rife with fraud—the SEC invoked SEC v. W.J. Howey Co., 328 U.S. 837 (1946), to bring matters under control. Applying the Howey test, the agency concluded that digital tokens, when used to raise capital, can fall within the definition of a “security” under the Securities Act and are thus subject to federal regulation as such. A digitized security or “security token,” the SEC reasoned, is still a security—regardless of its transactional medium. Continue reading “Mr. Hinman’s Metaphysics: Some Thoughts on Reexamining the Utility Token”