SEC’s Approach to Crypto Regulation (according to Grewal)

For years now, the crypto world has promised to rewrite the rules of finance. Innovations in blockchain, cryptocurrencies, stablecoins, and so-called decentralized finance (DeFi) have excited entrepreneurs, entranced investors, and puzzled lawyers and regulators. Against this dizzying backdrop, Gurbir S. Grewal, Director of the U.S. Securities and Exchange Commission’s (SEC) Division of Enforcement, lays out a straightforward message in his article, What’s Past Is Prologue: Enforcing the Federal Securities Laws in the Age of Crypto.¹

Grewal’s perspective may surprise those who expect radical new rules for revolutionary technology. Instead, he insists on a fundamental truth: The federal securities laws—the same laws passed in the wake of the Great Depression—were designed with enough breadth and flexibility to handle newfangled products and complex schemes, crypto included.² No special carve-outs, no exceptions just because the product claims to be “innovative.” The investor protections at the heart of the securities laws remain as vital today as they were nearly a century ago.

A Principles-Based Approach: Howey and the Definition of a “Security”
The story starts after the 1929 market crash, when Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934 to restore trust and stability.³ These statutes set up the SEC and defined “security” broadly, ensuring that any scheme seeking to raise money from the public could fall under the law’s purview. In the 1946 Supreme Court case SEC v. Howey, the Court established a flexible legal test for what counts as an “investment contract”—and thus a “security.”⁴

As Grewal points out, the Howey test doesn’t care whether the underlying asset is an orange grove (as in Howey), a whiskey cask, or the hottest crypto token.⁵ Courts have consistently found that if you invest money in a common enterprise expecting profits from the efforts of others, you’re dealing with a security. The test is substance over form: If it quacks like a security, it’s a security.⁶

Crypto’s Widespread Noncompliance and Investor Harm
Some crypto projects claim the old rules don’t apply to these novel digital assets. But, as Grewal notes, courts have repeatedly rejected those arguments, applying Howey to find that many crypto offerings involve securities.⁷ Meanwhile, the SEC’s own actions have revealed a troubling pattern of market misconduct: unregistered offerings, misleading claims, Ponzi schemes, and so-called stablecoins that aren’t stable at all.⁸ Influencers tout tokens for pay without disclosure, and cyberattacks exploit platform vulnerabilities, leaving investors footing the bill.⁹

These abuses cause real harm. According to surveys, many retail investors—often from marginalized communities—have lost money they could ill afford to lose, shattering their confidence and trust.¹⁰ Crypto was often pitched as a financial lifeline to the unbanked, but in practice, the downturns and frauds have disproportionately impacted the very communities it promised to uplift.¹¹

Compliance Is Possible—and Necessary
Grewal emphasizes that innovation does not justify ignoring established investor protections. Disclosures, registration, and oversight exist to ensure fair and transparent markets.¹² The SEC has made clear it is open to tailoring disclosure requirements thoughtfully, but market participants must meet the SEC halfway. Simply calling something “DeFi” or “stable” does not exempt it from the law.

When issuers fail to register and crypto platforms blur lines—acting as broker, dealer, exchange, and clearing agency simultaneously—they violate legal mandates designed to prevent conflicts of interest and protect investor funds.¹³ Complying with these laws isn’t just mandatory; it’s how trust is built.

Restoring Public Trust Through Enforcement
Public trust in finance can’t be taken for granted. Historical injustices and perceived double standards have eroded confidence in markets and regulators alike.¹⁴ Grewal argues the best remedy is robust and even-handed enforcement: holding bad actors accountable, whether they’re famous celebrities or large crypto firms.¹⁵

These enforcement actions send a vital message: there is one set of rules for everyone, and no issuer or influencer gets a free pass because they operate in a “new” market.

Epilogue: Turbulence Continues, Enforcement Continues
In an epilogue to his remarks, Grewal observes that crypto markets remain volatile, and the SEC continues to face a flood of investor complaints.¹⁶ The courts have repeatedly confirmed that Howey applies to crypto just like anything else. Despite industry pleas for bespoke rules or invoking the “major questions doctrine,” courts reject these arguments and reaffirm the SEC’s authority.¹⁷

The Commission keeps bringing actions against platforms operating illegally, and charging individuals who run crypto-related scams or unregistered offerings. Nothing about “cutting edge” technology negates the requirement to register, disclose, and comply.

Conclusion: The Future of Crypto Enforcement
In short, Grewal’s message is that what’s old can still address what’s new. The securities laws, born of an earlier financial crisis, were built to last through changes in technology. As the crypto landscape evolves, the SEC’s mission remains the same: protect investors, ensure fair and orderly markets, and maintain public trust. Grewal’s stance underscores that innovation and compliance aren’t incompatible. Instead, compliance is the bedrock upon which responsible innovation can flourish.¹⁸