Enforcement Chief Speaks on the “Why” of SEC’s Work

Whether you’re here in person or participating virtually from around the country, or even overseas, I thank you for joining us.

As is customary, my remarks this morning are in my official capacity as Director of the Securities and Exchange Commission’s Division of Enforcement, and do not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff.

I want to start by thanking PLI for organizing this event and making it available for free to all this year. It is important for us to speak directly to not just the securities bar, but also to everyone that is interested in our work.

And that is precisely what we’d like to do today—speak to you directly. In a few moments, my Enforcement Division colleagues will talk to you about the “what” of our work — in other words, the issues that are top of mind for us.

Whether that’s explaining how we’re thinking about penalties, disgorgement and remedies; highlighting enforcement initiatives; discussing legal developments; or outlining the many ways in which we are encouraging and rewarding cooperation; this type of dialogue benefits all of us.

By hearing about issues significant to the Enforcement program, you all are better able to counsel your clients. And, together, we are better able to protect investors – which, after all, should be our shared mission.

But before we get to the “what,” I’d like to discuss the “why” of our work.

It goes without saying that we are facing significant headwinds in our enforcement efforts. There are some that question our authority, hoping for a different regulatory regime altogether for their industry. And there are others that question our motivations. And in rare cases, there are also those that question the integrity with which we approach our work. I’d like to address each of these headwinds, in turn, underscoring the importance of our work in the process.

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.[1] It’s not the “essential ingredients” test,[2] or the Beanie Baby test,[3] or some other test that industry folks might like to create for themselves.

And 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.[4] Even parties that argue in court that their conduct does not implicate the federal securities laws have themselves used the Howey framework internally for years to evaluate crypto offerings.[5]

Of course, 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.[6]

Nevertheless, over the past decade, we have confronted significant non-compliance and many, many creative attempts by market participants to avoid our 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.

They have variously argued that their crypto products were “currencies” and, therefore, beyond our remit; that the term “investment contract” was unconstitutionally vague and could not be applied to crypto; that their offerings were “utility tokens” not securities; that there was a “lack of fair notice” their conduct implicated the securities laws; that everything was “decentralized” and because there were no entities or entrepreneurs involved, we lacked jurisdiction; that there needed to be an actual “contract” for there to be an “investment contract” under Howey; and more recently that there was something called the “major questions doctrine” that prevented us from using our tools to protect investors in the crypto markets.

At the same time, 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, a decade’s worth of arguments that have been serially rejected in one way or another by court after court.[7] 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.

Indeed, as one federal court recently stated, “the ‘crypto’ nomenclature may be of recent vintage, but the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years.”[8] The court went on to observe that “[u]sing enforcement actions to address crypto-assets is simply the latest chapter in a long history of giving meaning to the securities laws through iterative application to new situations.”[9]

These crypto enforcement actions have not been, and are not, without challenge. 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.

Last year, the Pew Research Center released a survey finding that nearly a third of Americans who had ever invested in, traded, or used crypto, no longer held any.[10] The same survey found that a whopping three-quarters of Americans who have heard about crypto do not believe that it is reliable and safe.[11] Given the continued noncompliance in this space, they have good reason to be concerned.

One need look no further than last week’s sentencing of Samuel Bankman-Fried to see the impact of noncompliance.[12] In advance of the sentencing, the Department of Justice filed hundreds of victim statements with the court.[13] The victim statements reflect the incredibly broad cross-section of people who were harmed by the fraud that Bankman-Fried was convicted of: single parents, retirees, young people, grandparents. People who were forced to sell their home, their car, or take on a second job to make up for their losses. People who had to figure out a way to pay for their mortgage, education, retirement, and so on.

And as another example, just last month, the SEC charged 17 individuals for their role in an alleged crypto Ponzi scheme that raised $300 million from more than 40,000 investors, primarily from the Latino community.[14] Several defendants allegedly solicited investors with promises of financial freedom and “risk free” crypto and foreign exchange investments.[15] As alleged in our complaint, in true Ponzi fashion, most of the funds raised were not used for any investments; they were instead used to fund the defendants’ lifestyles and to pay supposed returns to other investors.

The “predatory inclusion” tactics that certain crypto entities are directing at Black, brown, and other marginalized communities are extremely troubling.[16] Here, I’m talking about the familiar (but so far unsupported) narratives that crypto will increase financial inclusion;[17] that it will uplift the unbanked or underbanked; and that it will help them build wealth and increase upward mobility.

We’ve seen unlawful tactics on full display in cases where the SEC has charged “influencers” for touting unregistered crypto asset offerings to investors without disclosing that they are being compensated to do so.[18] We even charged one celebrity with making materially false and misleading tweets about supposed returns from his crypto investments while not disclosing that he was being paid hundreds of thousands of dollars for his tweets.[19]

Whether it’s the direct result of these types of efforts or for other reasons beyond the scope of these remarks, crypto assets are the only major financial products that Black Americans are more likely to own than white Americans.[20] And there is some evidence that Black and brown investors were disproportionately harmed during the downturn of crypto markets over the last few years.[21]

In the end, the stories of the victims in all of these cases are absolutely devastating and they are our “why.” But somehow they are constantly drowned out by tired industry talking points about us exceeding our authorities and destroying innovation, among others. But regardless of the headwinds, we remain committed to using all the tools at our disposal to protect the investing public, including against risks in the crypto markets.

It’s my 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.

I’d like to end by addressing a particular headwind that we face from certain market participants: attacks on our integrity. I am now coming up on three years in this role, and like so many of my colleagues I have spent the majority of my career in public service. During that time, I have had the privilege to work alongside thousands upon thousands of dedicated public servants at the local, state and federal levels. And here’s what I’ve learned: we don’t do this work to round corners and notch wins. Nor do we do it for financial incentives or personal gain. The overwhelming majority of us do it for one reason alone: we believe in standing up for others. In the case of the Enforcement Division, that means standing up each and every day for the investing public.

That’s why, as we speak, there are investigative teams across the division poring through voluminous records to, for example, seek emergency relief to stop ongoing frauds.

And it’s why there’s a trial team in New York walking into district court, as we speak, to present evidence to a jury concerning a massive alleged crypto fraud—all in an effort to hold accountable the individual and entity responsible for alleged widespread investor harm.[22]

And it’s why in just a few hours, a trial team in California will walk into district court to hold accountable an insider that allegedly benefitted from his position in a way the rest of us cannot—by engaging in, as we allege, insider trading.[23]

Our ability to do all of this work depends on trust and credibility. As I’ve spoken about previously, 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.

We can never let our zeal to address misconduct compromise that reservoir of trust and credibility that we, and the other public servants that came before us, have spent careers building and protecting; after all, it’s what allows us to do so much of the good we are trying to do.[24]

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. [25]

But 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.

With that, I’ll turn it over to Sanjay Wadhwa, Deputy Director of the Division Enforcement, for some brief remarks and to introduce the Enforcement panel, which will discuss some of our investor protection efforts.


[1] See SEC v. W.J. Howey Co., 328 U.S. 293, 297 (1946) (setting forth the test for what constitutes an “investment contract,” and therefore a security, for purposes of the federal securities laws). Courts have since divided the Howey test into three elements: (1) an investment of money; (2) in a common enterprise; and (3) with a reasonable expectation of profits derived from the efforts of others. See, e.g., SEC v. Edwards, 540 U.S. 389, 393 (2004); Reves v. Ernst & Young, 494 U.S. 56, 64 (1990); see also cases cited herein.

[2] See SEC v. Ripple Labs, Inc., 2023 U.S. Dist. LEXIS 120486, at *19 (S.D.N.Y. July 13, 2023) (“The Court declines to adopt Defendants’ ‘essential ingredients’ test, which would call for the Court to read beyond the plain words of Howey and impose additional requirements not mandated by the Supreme Court.”).

[3] See SEC v. Coinbase, Inc., 2024 U.S. Dist. LEXIS 56994, at *74-75 (S.D.N.Y. Mar. 27, 2024) (“Unlike in the transaction of commodities or collectibles (including the Beanie Babies discussed during the oral argument . . . ), which may be independently consumed or used, a crypto-asset is necessarily intermingled with its digital network — a network without which no token can exist.”)

[4] SEC pleadings filed in federal court are available at www.sec.gov/litigation/litreleases. SEC settled orders are available at www.sec.gov/litigation/admin.

[5] See, e.g., SEC v. Coinbase, Inc., 2024 U.S. Dist. LEXIS 56994, at *49 (S.D.N.Y. Mar. 27, 2024] (citing allegation in SEC’s complaint that Coinbase used Crypto Ratings Council “to assess whether certain crypto-assets had the characteristics of securities under Howey”); SEC v. Ripple Labs, Inc., 2023 U.S. Dist. LEXIS 120486, at *14-15 (S.D.N.Y. July 13, 2023) (noting that Ripple received two memoranda from counsel analyzing whether XRP tokens constitute investment contracts under Howey).

[6] See, e.g., SEC v. Edwards, 540 U.S. 389, 391, 397 (2004) (payphone sale-and-leaseback agreements); Eberhardt v. Waters, 901 F.2d 1578, 1579, 1582 (11th Cir. 1990) (cattle embryos); Smith v. Gross, 604 F.2d 639, 641–43 (9th Cir. 1979) (earthworms); Glen-Arden Commodities, Inc. v. Costantino, 493 F.2d 1027, 1035 (2d Cir. 1974) (casks of Scotch whiskey); SEC v. Koscot Interplanetary, Inc., 497 F.2d 473, 485–86 (5th Cir. 1974) (cosmetics distributorships); SEC v. Glenn W. Turner Enters., Inc., 474 F.2d 476, 482–83 (9th Cir. 1973) (self-improvement courses); Miller v. Cent. Chinchilla Grp., Inc., 494 F.2d 414, 415–16 (8th Cir. 1974) (chinchillas); Cont’l Mktg. Corp. v. SEC, 387 F.2d 466, 468, 471 (10th Cir. 1967) (beavers).

[7] See, e.g., SEC v. Coinbase, Inc., 2024 U.S. Dist. LEXIS 56994, at *3, *43 (S.D.N.Y. Mar. 27, 2024) (explaining that “the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years”); SEC v. Genesis Glob. Capital, LLC, No. 23-cv-00287 (ER), 2024 U.S. Dist. LEXIS 44372, at *44-45 (S.D.N.Y. Mar. 13, 2024) (“Under both Howey and Reves, the SEC has plausibly alleged that Defendants offered and sold unregistered securities through the Gemini Earn program.”); SEC v. Wahi, No. 2:22-cv-01009-TL, 2024 U.S. Dist. LEXIS 36788, at *21 (W.D. Wash. Mar. 1, 2024) (holding that, “under Howey, all of the crypto assets that Ramani purchased and traded were investment contracts,” including to the extent that the assets were traded on the secondary market); SEC v. Terraform Labs Pte. Ltd., No. 23-cv-1346 (JSR), 2023 U.S. Dist. LEXIS 230518, at *43 (S.D.N.Y. Dec. 28, 2023) (stating that “Howey’sdefinition of ‘investment contract’ was and remains a binding statement of the law, not dicta” and finding that “[t]here is no genuine dispute that the elements of the Howey test – ‘(i) investment of money (ii) in a common enterprise (iii)with profits to be derived solely from the efforts of others’ [ ] have been met for UST, LUNA, wLUNA, and MIR [the crypto assets at issue]”); SEC v. Ripple Labs, Inc., 20-cv-10832 (AT), 2023 U.S. Dist. LEXIS 120486, at *19-20 (S.D.N.Y. July 13, 2023) (rejecting defendants’ argument that, in addition to satisfying the Howey test, all investment contracts must contain certain additional “essential ingredients” and finding that Ripple’s institutional sales of its XRP crypto token constituted the unregistered offer and sale of investment contracts and therefore securities); SEC v. Terraform Labs Pte. Ltd., No. 23-cv-1346 (JSR), 2023 U.S. Dist. LEXIS 132046, at *21-22 (S.D.N.Y. July 31, 2023) (rejecting argument that the Major Questions Doctrine “prevent[s] the SEC from alleging the company’s digital assets to be ‘investment contracts’” and explaining that “Defendants cannot wield a doctrine intended to be applied in exceptional circumstances as a tool to disrupt the routine work that Congress expected the SEC and other administrative agencies to perform.”); SEC v. LBRY, Inc., 639 F. Supp. 3d 211, 221–22 (D.N.H. 2022) (granting summary judgment for SEC and rejecting fair notice defense, explaining that “[t]he SEC has not based its enforcement action here on a novel interpretation of a rule that by its terms does not expressly prohibit the relevant conduct. Instead, the SEC has based its claim on a straightforward application of a venerable Supreme Court precedent that has been applied by hundreds of federal courts across the country over more than 70 years.”); SEC v. NAC Found., LLC, 512 F. Supp. 3d 988, 994 (N.D. Cal. 2021) (denying motion to dismiss and noting that motion “falls well short of demonstrating that the SEC’s characterization of ABTC as a ‘security’ is implausible for pleading purposes”); SEC v. Kik Interactive Inc., 492 F. Supp. 3d 169, 174, 182–84 (S.D.N.Y. 2020) (granting SEC summary judgment on grounds that Kik offered digital currency Kin as a security); SEC v. Telegram Grp. Inc., 448 F. Supp. 3d 352, 371 (S.D.N.Y. 2020) (granting the SEC’s motion for a preliminary injunction notwithstanding Telegram’s argument that investors “bought Grams with the expectation to use them as currency” and not “with an expectation of profit”).

[8] SEC v. Coinbase, Inc., 2024 U.S. Dist. LEXIS 56994, at *3 (S.D.N.Y. Mar. 27, 2024).

[9] Id. at *43.

[10] Michelle Faverio & Olivia Sidoti, Majority of Americans aren’t confident in the safety and reliability of cryptocurrency, Pew Rsch. Ctr. (Apr. 10, 2023), www.pewresearch.org/short-reads/2023/04/10/majority-of-americans-arent-confident-in-the-safety-and-reliability-of-cryptocurrency/ (“Roughly three-in-ten adults (31%) who have ever invested in, traded or used cryptocurrency say they currently do not have any cryptocurrency.”).

[11] Id. (“Among the vast majority of Americans who say they have heard at least a little about cryptocurrency (88%), three-quarters say they are not confident that current ways to invest in, trade or use cryptocurrencies are reliable and safe, according to a Pew Research Center survey conducted March 13-19.”)

[12] See Press Release, DOJ, “Samuel Bankman-Fried Sentenced to 25 Years for His Orchestration of Multiple Fraudulent Schemes” (March 28, 2024), available at www.justice.gov/opa/pr/samuel-bankman-fried-sentenced-25-years-his-orchestration-multiple-fraudulent-schemes.

[13] United States v. Samuel Bankman-Fried, Case No. 22-cr-0673 (S.D.N.Y., March 18, 2024) [Docket No. 411].

[14] See Press Release, SEC, “SEC Charges 17 Individuals in $300 Million Crypto Asset Ponzi Scheme Targeting the Latino Community” (March 14, 2024), available at www.sec.gov/news/press-release/2024-35.

[15] Id., Complaint ¶ 37.

[16] See, e.g., Litigation Release, SEC, “SEC Halts Crypto Asset-Related Fraud Victimizing Latino Investors” (Oct. 3, 2022) (explaining that the SEC obtained emergency relief in an action alleging that defendant held paid classes for the ostensible purpose of educating and empowering the Latino community to build wealth through crypto asset trading, but was running a Ponzi scheme that raised over $12 million from more than 5,000 investors), available at www.sec.gov/litigation/litreleases/lr-25547.

[17] See, e.g., Tonantzin Carmona, Debunking the Narratives About Cryptocurrency and Financial Inclusion, Brookings (Oct. 6, 2022), www.brookings.edu/articles/debunking-the-narratives-about-cryptocurrency-and-financial-inclusion/ (“[C]rypto may offer access to financial services (according to the industry’s narratives), but with the caveats of high risks and insufficient consumer protections.”); see also Alex Fredman & Todd Phillips, Claims That Crypto Bolsters Financial Inclusion Are Dubious, Ctr. for Am. Progress (Mar. 25, 2022), www.americanprogress.org/article/claims-that-crypto-bolsters-financial-inclusion-are-dubious/(noting that advocates’ claims that cryptocurrencies improve access to financial services lack evidence).

[18] See, e.g., Press Release, SEC, “SEC Charges Crypto Entrepreneur Justin Sun and his Companies for Fraud and Other Securities Law Violation” (Mar. 22, 2023) (settled orders against some parties) (alleging that celebrities Lindsay Lohan, Jake Paul, DeAndre Cortez Way (Soulja Boy), Austin Mahone, Michele Mason (Kendra Lust), Miles Parks McCollum (Lil Yachty), Shaffer Smith (Ne-Yo), and Aliaune Thiam (Akon) illegally touted crypto asset securities Tronix (TRX) and/or BitTorrent (BTT) without disclosing that they were compensated for doing so), available at www.sec.gov/news/press-release/2023-59; Press Release, SEC, “SEC Charges NBA Hall of Famer Paul Pierce for Unlawfully Touting and Making Misleading Statements about Crypto Security” (Feb. 17, 2023) (settled order), available at www.sec.gov/news/press-release/2023-34; Press Release, SEC, “SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security” (Oct. 3, 2022) (settled order), available at www.sec.gov/news/press-release/2022-183.

[19] See Paul Anthony Pierce, Securities Act Release No. 11157, Administrative Proceeding File No. 3-21305 (Feb. 17, 2023) (settled order) (finding that Pierce tweeted misleading statements related to EMAX tokens, which he was paid to promote, including tweeting a screenshot of an account showing large holdings and profits without disclosing that his own personal holdings were in fact much lower than those in the screenshot), available at www.sec.gov/files/litigation/admin/2023/33-11157.pdf.

[20] See, e.g., Why the crypto crash hit black Americans hard, The Economist (May 20, 2022), available at www.economist.com/graphic-detail/2022/05/20/why-the-crypto-crash-hit-black-americans-hard.

[21] See, e.g., id.; see also Adrian Ma, The promise and peril of crypto for Black investors, NPR (June 28, 2022), available at www.npr.org/2022/06/28/1108413738/the-promise-and-peril-of-crypto-for-black-investors; Paulina Cachero, Crypto Collapse Threatens to Leave Black, Hispanic Investors Further Behind, Bloomberg (July 7, 2022), www.bloomberg.com/news/articles/2022-07-07/crypto-collapse-threatens-to-leave-black-hispanic-investors-further-behind.

[22] See Press Release, SEC, “SEC Charges Terraform and CEO Do Kwon with Defrauding Investors in Crypto Schemes” (Feb. 16, 2023), available at www.sec.gov/news/press-release/2023-32.

[23] See Litigation Release, SEC, “SEC Charges Biopharmaceutical Company Employee with Insider Trading” (August 17, 2021), available at www.sec.gov/litigation/litreleases/lr-25170.

[24] Cf Comey, James B., A Higher Loyalty: Truth, Lies, and Leadership, Flatiron Books, 2018 (recounting that he told new prosecutors that a “reservoir of trust and credibility” had been built for them by the integrity of prior public servants, that this gift came with a responsibility to maintain it, and that the reservoir took a long time to fill, but could be drained in an instant by a single misdeed).

[25] See SEC v. Digital Licensing Inc. dba DEBT BOX, Case No. 23-cv-00482-RJS-DBP (D. Utah, March 18, 2024) [Dkt. 233-6] SEC’s Response to the Court’s November 30, 2023 Order to Show Cause, Exhibit 6: Declaration of Gurbir S. Grewal.

These remarks were delivered on April 3, 2024, by Gurbir Grewal, director of the Division of Enforcement at the U.S. Securities and Exchange Commission, at SEC Speaks 2024, in Washington, D.C.