SEC Cryptocurrency Enforcement: What You Need to Know.

The Securities and Exchange Commission (“SEC”) investigates cryptocurrency activity involving potential securities-law violations (among other forms of misconduct). This is among others because the SEC is not a criminal prosecutorial agency; and while it can pursue criminal charges through the United States Department of Justice (“DOJ”), any criminal prosecution is the DOJ’s prerogative. The DOJ will, in some cases, choose to take enforcement action, both civil and criminal, based on evidence of a crime, but it has no obligation to take action based on a civil securities-law enforcement proceeding.

When Does the SEC Have Jurisdiction Over Cryptocurrency Transactions?

The SEC’s jurisdiction over cryptocurrency transactions will often turn on whether the transaction involves securities. However, this depends on whether the relevant transaction (or multiple transactions) fall within the definition of a “security.” Other examples of cryptocurrency-related transactions falling within the SEC’s enforcement jurisdiction include:

• Cryptocurrency trading through qualifying alternative trading systems (covered by Regulation ATS)
• Managers of pooled cryptocurrency investments (covered by the Investment Advisers Act)
• Cryptocurrency exchanges and platforms (required to register when they trade securities)

This list is by no means exhaustive. It includes only a small sample of cryptocurrency transactions that could trigger SEC scrutiny (with the potential for SEC investigations).

What Triggers SEC Cryptocurrency Enforcement?

Similar to other areas of the SEC’s enforcement authority, cryptocurrency enforcement will often be triggered by one of two types of events:

• Investor Complaints: Cryptocurrency transactions triggering SEC enforcement investigations often begin with investor complaints. Here, the SEC will have the authority to investigate in order to determine whether the allegations are substantiated.
• Whistleblower Tips: Whistleblower tips also frequently trigger SEC enforcement investigations. In some cases, these tips can help the SEC launch investigations quickly. However, whistleblowers may submit tips to the SEC anonymously if they are represented by an attorney, and the SEC is required to protect a whistleblower’s identity. This poses additional risks for individuals who may know they are responsible for securities-law violations.

How Does the SEC Decide Whether Crypto is a Security?

To determine whether cryptocurrency is a security, the SEC primarily uses the test derived from the U.S. Supreme Court’s decision in SEC v. W. J. Howey Co., 328 U.S. 293 (1946). Howey established a four-prong test for investment contracts:

• Investment of Money: Howey establishes that an investment contract requires “the investment of money” (or other forms of consideration).
• Participation in a Common Enterprise: Howey also established that an investment contract requires “participation in a common enterprise.”

What Other Criteria Are Involved in the SEC’s Approach to Securities Analysis?

The third and fourth prongs of the Howey test are a bit broader than the first two. The Supreme Court’s language in Howey says:

• Reasonable Expectation of Profits: Here, Howey establishes that an investment contract must also feature a “reasonable expectation of profits.” This third prong of Howey also notes that this expectation of profit must come from “the entrepreneurial or managerial efforts of others.” In recent years, the SEC and U.S. courts have largely limited the application of this third prong of Howey to the case where the profits are not tied to the success of the investment contract but rather come from the profits of the transaction itself.
• Profits Solely from the Efforts of Others: The fourth prong of the Howey test is the analysis of whether the investor’s “reasonable expectation of profits” was tied to “the entrepreneurial or managerial efforts of others.” This is similar to the third prong of Howey, but it adds an additional component. In Howey’s words, the investor must be “led to expect profits solely from the efforts of the promoter or a third party.” It is here that the Howey test becomes more difficult to apply in some cases. In Howey’s opinion, this involves examining the extent to which profits are tied to the efforts of the promoters or any others involved. The case of SEC v. W. J. Howey Co. is an early example of the government successfully arguing that an investment contract existed even though there was no tangible security involved.

Do Crypto Tokens’ Labels Define Securities Transactionality?

No. The SEC (and U.S. courts) clearly says no. Just because a particular token, coin, or other form of cryptocurrency is referred to as a token, coin, or some other label does not mean its sale is (or is not) securities-related. Just like Howey, this part of the SEC’s cryptocurrency enforcement authority allows the SEC to make an informed decision in each individual case.

Does Howey Allow the SEC to Categorically Decide if Crypto is a Security?

Again, the answer is no. Just like Howey, the SEC does not categorize an asset (or a transaction) as either “securities-related” or “non-securities-related.” Instead, Howey allows the SEC to look at the contract, transaction, or scheme at issue to decide whether an investment contract exists.

How are Secondary-Market Crypto Transactions Handled?

If an asset (like a crypto coin) was issued as part of a securities transaction (like an IPO), is its subsequent sale on the secondary market also a securities transaction? In some cases, yes. However, this is not the general rule. According to the SEC, secondary-market transactions must be analyzed based on their own transactional facts.

What Should I Do After Receiving an SEC Subpoena?

If you received a subpoena from the SEC, you should take action immediately. A formal investigation order authorizes the SEC’s staff to issue subpoenas, and the subpoenas can compel either the production of documents or sworn testimony. If you have been subpoenaed, it is important that you speak with an experienced securities lawyer to determine how to respond. These lawyers have extensive experience negotiating with SEC lawyers to limit the scope of subpoenas, negotiate production schedules, and negotiate dates and locations for testimonies.

Does Receiving an SEC Subpoena Mean That I Violated Federal Securities Laws?

No. Even if you (or a person or company for whom you are serving as a representative) have received a subpoena in the context of an SEC investigation, it is still possible that you (or that person or company) have not violated any federal securities laws. In fact, this is even true in the case of subpoenas issued to third parties. Many third parties receive subpoenas for records that are relevant to the SEC’s investigation; however, this does not mean that the SEC believes these third parties have violated federal securities laws or that they are in any way involved in fraudulent activities.

What Should I (or My Company) Do After Receiving an SEC Subpoena?

If you (or your company) have received an SEC subpoena, you should immediately take action to preserve all records that could be potentially responsive to the request. This includes all records in the possession or control of you or your company, and this includes all electronically stored information. Some individuals and companies receive subpoenas, only to destroy documents because they think that the documents do not look incriminating. If these documents are then sought from other sources, the SEC may have a strong case against the individuals or companies that have destroyed the records. In many cases, this is a federal crime. Under 18 U.S.C. Section 1519, it is a federal crime to destroy, falsify, or omit documents to obstruct an investigation conducted by the Department of Justice, the DEA, the IRS, the SEC, or a federal judge or prosecutor.

Here are three steps that individuals and companies that have received an SEC subpoena need to take (at the very least) when deciding how to respond to the subpoena:

• Determine What Documentation is Requested
• Establish a Privilege Review Protocol
• Communicate with the SEC

How Long and How Expensive Is an SEC Crypto Investigation?

How Long Does an SEC Crypto Investigation Take?

The SEC’s internal investigations remain confidential until the commission decides to bring charges. There is no standard deadline that governs the length of time it takes to complete an investigation, and no rules that make it imperative that it finishes within a specific timeframe. However, several events that happen during an SEC investigation may offer insight into the SEC’s timeline for filing charges. These events include, but are not limited to:

• Issuance of a Wells Notice
• Opening of a Matter Under Inquiry (MUI)
• Issuance of a Search Warrant (In certain cases)

There are numerous ways in which the SEC’s case can progress, including various stages of investigations that can end in charges, a case dismissal, or other forms of resolution.

How Long Does it Take to Respond to an SEC Crypto Subpoena?

In recent years, the SEC has not published a median duration specifically for cryptocurrency investigations. However, in its FY2020 Division of Enforcement annual report, the SEC reported a median time of 21.6 months from the opening of an investigation to the filing of an enforcement action.

SEC cryptocurrency investigations can also run long if they include a subpoena. In many cases, the subpoena is issued early on in the investigation. Even so, the subpoena takes up a substantial amount of time and resources, with the response process requiring rolling document productions and a careful privilege review. Another time-consuming step is the Wells submission. As stated in the section above, a Wells notice signals that the SEC staff may recommend enforcement charges. However, filing a Wells submission can extend the timeline for SEC charges. If an individual or company persuades the SEC to reconsider whether enforcement charges are warranted, this could extend the pre-filing timeline further.

How Expensive is it to Respond to an SEC Crypto Subpoena?

Producing records and responding to testimony requires substantial time and resources. In addition to the costs of the attorney(s) that individuals and companies hire to respond to their subpoena, responding to subpoenas involves expenses related to:

• Collection, processing, and hosting of responsive documents.
• Reviewing documents for responsiveness, redaction of irrelevant documents, and privilege logging.

What Are the Legal Fees Involved in Defending an SEC Crypto Investigation?

The SEC does not publish the median legal fees involved in defending an SEC crypto investigation. This makes sense. Legal fees will depend heavily on the complexity of the transactions involved. Factors such as a client’s potential exposure, the type of transactions involved, and whether the SEC is seeking civil penalties will all have a bearing on the costs involved.

This is the point at which most people call a lawyer. Spodek Law Group takes federal criminal defense cases nationwide from its New York and Los Angeles offices.

When Can an SEC Crypto Case Create Criminal Exposure?

The SEC and Other Regulators

The SEC shares evidence from its investigations with other regulatory and law enforcement agencies. When the SEC discovers evidence of potential fraud, it often shares information with the Commodity Futures Trading Commission (“CFTC”), which also pursues fraud and other types of misconduct involving cryptocurrency transactions. When necessary, our attorneys can coordinate responses to parallel investigations to help our clients avoid duplicating efforts and maintain a consistent messaging strategy.

The SEC and the Department of Justice

The SEC often shares information with the DOJ as well. While the SEC only brings civil enforcement actions in cases involving suspected securities fraud, the DOJ can prosecute criminal securities fraud cases. The SEC has a substantial interest in uncovering any criminal activity that may be involved with a particular cryptocurrency transaction, or a series of transactions, and it works closely with the DOJ to ensure that appropriate charges are pursued in all cases.

Corporate Counsel vs. Individual Representation

Companies subpoenaed for documents or testimony typically engage outside counsel. While these lawyers can represent employees, corporate counsel’s primary loyalty is to the entity it represents. This can create conflicts. For example, if an employee has information about a company’s misconduct that the company’s lawyers do not, the employee may need to decide whether to disclose this information to the company’s lawyers.

Conflicts and the Need for Separate Counsel

Potential criminal exposure is another major source of conflicts between a company and individuals serving as representatives of the company. In these situations, an individual’s interests may diverge significantly from those of the company. If an individual believes that they are facing criminal exposure due to alleged misconduct, it is important to retain separate counsel.

The Securities Act Section 17(a)

Section 17(a) of the Securities Act makes it unlawful for any person, in the offer or sale of any securities, to employ “any device, scheme, or artifice to defraud,” to obtain money or property by means of a material misstatement or omission, or to engage in any transaction, practice, or course of business that operates as a fraud or deceit upon the purchaser. This section of the law is one of the primary ways that the SEC has successfully pursued enforcement action in cases involving cryptocurrencies.

The Exchange Act Section 10(b)

Section 10(b) of the Exchange Act prohibits individuals from using “any manipulative or deceptive device or contrivance” in connection with the purchase or sale of “any security.” This section of the law has often been cited in cases involving cryptocurrency exchange fraud, and it has provided the basis for enforcement action in a broad range of other crypto cases as well.

What Can Happen When an SEC Investigation Ends?

Termination of the Investigation

When the SEC’s staff concludes their investigation, the SEC may formally or informally terminate their investigation. As discussed in the section above, this could involve an announcement that the agency does not recommend the Commission file charges. Even so, the evidence uncovered in a closed investigation can still be used to pursue criminal charges, if any.

Civil Enforcement Action

Alternatively, the SEC’s staff may recommend filing an enforcement action. However, filing a recommended enforcement action requires Commission authorization. If the Commission authorizes the SEC’s staff to file charges, then the SEC can pursue an enforcement action in federal court or in an administrative proceeding. Both the Commission’s decision to file charges and its choice of forum are important and they require a strategic approach.

Federal Court Civil Action

If the SEC files a civil enforcement action in federal court, it can seek the following:

• Injunctions: The SEC can seek an injunction to prevent an individual from continuing to engage in fraudulent activities.
• Civil Money Penalties: Under various federal securities laws, the SEC can seek civil money penalties for securities-related fraud and other fraudulent transactions as well.
• Disgorgement: Under the Sarbanes-Oxley Act and other federal statutes, the SEC can seek disgorgement and restitution for losses.
• Officer and Director Bars: In certain cases, the SEC can seek to prevent individuals from serving as officers and directors of publicly traded companies.
• Industry Bars: Along with officer and director bars, the SEC can seek industry bars as well. These can prevent individuals from working in positions that provide investment advice, or from working for other securities firms and exchanges in the future.

Administrative Proceeding

When the SEC pursues an enforcement action in an administrative proceeding, the remedies it can seek are similar to those it can seek in federal district court. However, in some cases, the SEC will be able to seek additional penalties and sanctions through an administrative proceeding.

SEC Settlement Agreement

In many cases, responding to an SEC investigation will lead to an enforcement action. When this happens, negotiated settlements become an option. Settlements in SEC enforcement cases often involve remedial terms. Examples of remedial terms and penalties in SEC settlements include:

• Independent Consultants: The SEC may require an individual or company that has settled an enforcement action to retain independent consultants.
• Reporting Obligations: As part of a settlement, the SEC can require an individual or company to provide reports to the Commission on a recurring basis.
• Cooperation Obligations: Similar to reporting obligations, the SEC often imposes cooperation obligations in settlement agreements.
• Compliance Remediation: Companies that have settled an enforcement action frequently agree to compliance remediation as part of the settlement.

Finally, similar to most federal cases, settlement agreements with the SEC commonly state that the settling party resolves the allegations “without admitting or denying liability.”

Has SEC Cryptocurrency Enforcement Changed Since 2025?

The SEC’s “New” Crypto Task Force

In January 2025, the SEC launched a new Crypto Task Force. This new task force will focus on enforcement action in the areas of cryptocurrency trading platforms and decentralized finance (“DeFi”). The group’s first meeting was held on February 3, 2025, with commissioner Hester Peirce presiding.

The Crypto Task Force’s 2025 Roundtables

As mentioned above, Commissioner Hester Peirce is the leader of the SEC’s new Crypto Task Force. In early 2025, the Crypto Task Force launched a series of roundtables intended to educate the public and provide updates on the SEC’s views on enforcement. Specifically, these roundtables include:

• The Crypto Task Force’s Roundtable on the Status of Cryptocurrencies as Securities
• The Crypto Task Force’s Roundtable on Cryptocurrency Trading
• The Crypto Task Force’s Roundtable on Cryptocurrency Custody
• The Crypto Task Force’s Roundtable on the Tokenization of Securities
• The Crypto Task Force’s Roundtable on Decentralized Finance
• The Crypto Task Force’s Roundtable on the Crypto Industry’s Future

Paul S. Atkins and the SEC’s New Crypto Enforcement Stance

On April 21, 2025, Paul S. Atkins was appointed as the new Chair of the Securities and Exchange Commission. After six months on the job, the SEC’s enforcement chief resigned, and Paul S. Atkins was appointed as the acting enforcement chief as well. Under Paul S. Atkins’ leadership, the SEC has taken a more moderate approach in cryptocurrency cases.

The Dismissal of the SEC’s Coinbase and Binance Enforcement Actions

Along with taking a more moderate approach in cryptocurrency enforcement, Paul S. Atkins approved dismissing the SEC’s enforcement action against Coinbase with prejudice in February 2025, and he approved dismissing the SEC’s civil enforcement action against Binance with prejudice in May 2025. By dismissing these cases with prejudice, the SEC has waived its right to file charges against these companies again for a different form of misconduct.

The SEC and Ripple

The SEC’s attempt to impose enforcement action against Ripple also ended. After years of fighting, the SEC and Ripple both agreed to dismiss their respective appeals. When the appeals were dismissed in August 2025, they left intact the district court’s judgment which concluded that programmatically sold XRP tokens do not constitute securities transactions under the Howey test.

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 212-300-5196.