SEC Investigations of Cryptocurrency and Digital Assets.

An SEC cryptocurrency inquiry could range from a formal SEC investigation to an informal inquiry to help the SEC assess the scope of their enforcement authority over a certain type of product or business activity. The SEC often conducts parallel investigations to determine whether multiple statutes are applicable and whether enforcement will be pursued.

What Individuals and Entities Does the SEC Investigate in Crypto-Related Matters?

The SEC conducts crypto-related investigations involving issuers, exchanges, miners, advisers, platforms, companies that may be acting as broker-dealers or banks, executives, and market participants.

What Specific Allegations and Issues Does the SEC Address in Crypto-Related Investigations?

The SEC pursues a variety of allegations and focuses on a range of issues. Examples of SEC crypto-related investigations include:

• Securities fraud, market manipulation, and insider trading;
• Violations related to the registration of securities and issuers;
• Issuance of unregistered securities;
• Violations of disclosure rules; and,
• Issues involving the registration of investment advisers, broker-dealers, transfer agents, clearing agencies, and other financial market intermediaries.

How Does the SEC Address Crypto-Related Matters in parallel with Other Federal Investigations?

While the SEC conducts civil investigations, other federal authorities may conduct parallel criminal investigations. For example, the U.S. Department of Justice (DOJ) may conduct criminal investigations while the SEC pursues civil charges. If the SEC is investigating an issuing entity or a company that acquired an asset-backed security, these entities may face parallel investigations from the SEC, DOJ, Commodity Futures Trading Commission (CFTC), and other regulators.

What are Some Steps in the SEC Investigation Process?

Steps in the SEC investigation process include voluntary interviews, proffered interviews, proffers, interviews with the target, subpoenas, investigative hearings, sworn testimony, Wells submissions, Wells notices, and litigation.

What are Some Issues the SEC Is Addressing Now or in the Future?

The SEC is continuing to address issues including crypto broker-dealer custody, crypto-treasury deals, and other emerging areas of cryptocurrency and digital assets. The SEC recently withdrew guidance regarding crypto broker-dealer custody and issued revised FAQs. While in 2025, U.S. regulators were reported to have scrutinized trading preceding crypto-treasury deal announcements and an SEC crypto-treasury investigation was reportedly paused due to a government shutdown, the SEC has not issued guidance on these issues and is still evaluating its authority.

How does an SEC crypto inquiry become an enforcement case?

What is the Difference Between the Division of Examinations and the Division of Enforcement?

The SEC’s Division of Examinations focuses on whether regulated entities are complying with applicable laws and regulations. The SEC’s Division of Enforcement focuses on whether individuals and companies have violated applicable laws and regulations.

Is an SEC Compliance Examination Also an SEC Enforcement Investigation?

No. A compliance examination can be initiated in response to a consumer complaint, a tip, or a whistleblower referral, but it does not involve criminal charges. A compliance examination involves an examination request, which is not an investigative subpoena. While the SEC can use examination findings to seek civil enforcement action, a compliance examination cannot, by itself, lead to the filing of an enforcement case.

Can Findings from an SEC Compliance Examination Lead to an SEC Crypto Enforcement Investigation?

Yes. If an SEC examination uncovers evidence of a possible violation, the SEC can refer the findings to the Division of Enforcement. The Division of Enforcement can then choose to launch an investigative inquiry focused on the possible violation.

What is a Formal Order in an SEC Crypto Investigation?

A formal order is a Commission-issued order that authorizes designated SEC staff to use investigative subpoenas to seek documents, testimony, and other evidence. This is in contrast to an informal SEC crypto investigation, in which the SEC can only obtain evidence through voluntary means. The SEC may issue formal orders for crypto-related investigations.

How does a Wells Notice Differ from a Lawsuit?

A Wells notice is a document that states the SEC staff has recommended filing a lawsuit. Issuing a Wells notice does not mean that the SEC has filed a lawsuit. A Wells notice is the first time that the SEC informs a target of its investigation that it plans to file a lawsuit against it.

What is a Wells Submission?

A Wells submission is a document containing a response to a Wells notice. An individual or company that has received a Wells notice can make a Wells submission that explains why the SEC should not file an enforcement action against it.

Do the SEC Staff Members Who Are Investigating Crypto-Related Matters Have the Authority to File the SEC’s Enforcement Case?

Generally, no. Although an SEC staff member or team of staff members can run the investigation, the SEC staff needs to obtain Commission authorization before filing an enforcement case. This is why a Wells submission is important; before the staff asks the Commission to authorize charges, the Wells submission gives the recipient an opportunity to explain to the Commission why no enforcement action should be brought.

What if the SEC Staff Determines That No Enforcement Action Is warranted?

If the SEC staff determines that no enforcement action is warranted, the staff can choose to close the crypto-related investigation without recommending a lawsuit. This is an important reason to work with the SEC promptly when the SEC requests information.

Why can the SEC treat crypto transactions as securities?

How Does the Howey Test Apply to Cryptocurrency Transactions?

In SEC v. W.J. Howey Co., 328 U.S. 293 (1946), the Supreme Court laid out four (interrelated) elements that are present in an “investment contract.” An investment contract is a security. Howey says that any investment contract formed during an issuance or a transaction must satisfy four requirements. The first requirement is that there must be an investment of money, or the “investment of money” requirement. The second requirement is that there must be a common enterprise. The third requirement is that the investors must have a reasonable expectation of profits, and the fourth requirement is that those profits must be derived primarily from the efforts of others.

In crypto enforcement cases, the Howey test also serves as the test that the SEC must use to determine whether an investment is made in an “investment contract.” The SEC has the ability to argue that each of the above requirements are met under Howey in crypto transactions.

Does Labeling a Digital Asset as a “Utility Token” Change the Analysis Under Howey?

While labeling a digital asset as a “utility token” doesn’t preclude it from being considered a security, this labeling may matter depending on the context. For example, in crypto cases, the SEC has been able to argue that any statements made regarding use of a token’s “utility” can have implications for other Howey factors, including investor expectations and the issuer’s efforts.

Despite this, under Howey, what governs is “economic reality.” This is why labeling a token as a “utility token” doesn’t preclude a potential securities claim.

Does Howey Say that Digital Assets Themselves are Securities?

No. In 2022, the SEC asserted that it was in this position. However, when this was challenged, the courts said that Howey applies to “transaction,” “scheme,” or “arrangement” involving a digital asset, but it doesn’t apply to digital assets themselves, as digital assets are just “digital assets” in the abstract.

How Did the Ripple Case Address the Use of Howey?

In the Ripple case, the court had to determine whether XRP was a security under the Howey Test. The court held that XRP in itself was not an investment contract, but transactions and schemes involving XRP could be. Specifically, the court distinguished “institutional sales” from “programmatic sales,” finding that institutional sales were investment contracts while programmatic sales were not.

Did the Terraform Case Affirm the Ripple Case?

No. In Terraform, the court rejected the distinction between institutional sales and programmatic sales drawn in the Ripple case. The court reasoned that Howey draws no distinction between purchasers based on whether they bought directly from the issuer or in a secondary resale transaction, so coins sold either way can be offered as investment contracts.

What is a Crypto-Taxonomy?

A crypto-taxonomy is a framework for identifying different types of crypto-related transactions and activities. The SEC and CFTC have been working together to develop such a taxonomy and, in March 2026, released an interpretation regarding this taxonomy.

Will the SEC Limit Its Use of Howey to Crypto-Related Issuer Transactions?

Possibly. When the SEC was trying to convince the courts to accept its broad interpretation of Howey, the courts pushed back, and the SEC limited its arguments to issuing digital assets. However, this does not preclude the SEC from using Howey to scrutinize other secondary-market token activity in the future.

If you are facing this situation, Spodek Law Group handles federal criminal defense matters nationwide, from offices in New York and Los Angeles.

What should I do when the SEC demands crypto records?

When is an SEC Response Due?

The SEC uses subpoenas to compel compliance. Subpoenas establish case-specific compliance dates. There are no universal SEC response deadlines that apply to all cases, as there are different deadlines for different types of demands.

What if I Ignore an SEC Investigative Subpoena?

If a target ignores an SEC investigative subpoena, the SEC can enforce compliance. Specifically, Exchange Act Section 21(c) expressly grants the SEC the power to seek enforcement of investigative subpoenas from a federal district court. As long as the subpoena is validly issued, recipients must comply.

Do I Have a Right to Counsel for Compelled SEC Testimony?

Yes. Witness subpoenas can either compel testimony from a specific individual or from the entity’s representative. When witnesses are compelled, they have a right to have their lawyers present during the proceedings.

When Does an Obligation to Preserve Evidence Begin?

Whenever a person or entity reasonably anticipates that it will be a party to litigation, it has a duty to preserve all relevant evidence. This duty applies not only to enforcement litigation, but also to other types of litigation involving the SEC.

What Does a Digital Preservation Obligation Include?

Due to the increasing use of digital technology, the SEC and U.S. DOJ expect digital evidence to be preserved. This includes:

• Messages sent and received via encrypted messaging applications, including disappearing message settings.
• Information stored on smartphones, tablets, laptops, and other personal devices.
• Information stored in cloud computing accounts.
• Email communications.

What Blockchain Data Must Be Preserved?

Issuers and other entities must also preserve data from blockchain and other ledgers. The following may be relevant:

• Wallet addresses.
• Transaction hashes.
• Signing records.
• Blockchain-address mapping files.
• Exchange data for accounts used to send and receive digital assets.

Is Not Recording Blockchain Addresses a Defense to Failure to Preserve Relevant Blockchain Evidence?

No. If an issuer or other entity has control of blockchain addresses, the failure to record the addresses doesn’t relieve them of their obligation to preserve relevant blockchain evidence. With blockchain forensics, it is often possible to identify the addresses controlled by an issuer in the first place.

Does the Use of Blockchain Address Records Reveal the Real-World Controller of a Wallet?

Not necessarily. While blockchain records identify the address, they don’t reveal the identity of the real-world controller of the wallet. Blockchain forensic companies can often find wallet attribution through other means, including:

• Exchange KYC (Know Your Customer) Data;
• Device evidence;
• Transaction patterns; and,
• Public blockchain analytics.

How do parallel SEC and DOJ investigations affect my defense?

Can an SEC Enforcement Action Lead to Imprisonment?

No. The SEC has the ability to initiate civil enforcement actions under federal securities laws and regulations, but this ability does not extend to criminal investigations. A successful SEC enforcement action cannot result in a criminal conviction. Imprisonment requires a criminal conviction.

How Does the Department of Justice (DOJ) Pursue Cryptocurrency-Related Enforcement?

The DOJ pursues federal criminal enforcement. While the SEC is the primary authority for civil enforcement, the DOJ is the primary authority for criminal enforcement. DOJ prosecutions are brought through the U.S. Attorney’s Office (USAO) in the relevant district.

Can the SEC Share Information With the DOJ in Parallel Civil and Criminal Investigations?

Yes. Under the confidentiality rules for government investigations, the SEC can share information that it collects from targets with criminal and other civil authorities including the DOJ and the CFTC. As a result, responses to the SEC’s demands can become evidence in a criminal or civil case brought by the DOJ, CFTC, or other authorities.

Can Information Obtained During SEC Testimony Be Used in Parallel Proceedings?

Yes. Information obtained during testimony given in response to an SEC investigative subpoena can also lead to federal criminal or civil enforcement action.

Does Voluntary Disclosure to the SEC Waive Attorney-Client Privilege?

As a general rule, yes. While attorney-client privilege is a recognized and widely applied legal principle, it is a rule of substantive law and not a rule of privilege. Thus, privilege exists only with the consent of the clients. Generally, if you voluntarily disclose information to the SEC in order to get the SEC to refrain from taking enforcement action, you waive the privilege and the information is no longer protected from disclosure.

What is an Upjohn Warning?

An Upjohn warning is a statement made by a company’s counsel to an employee before the counsel interviews the employee. Upjohn warnings are used to inform employees that the company’s counsel represents the company, and that the company, and not the individual, controls any privilege.

Do All Individuals in a Crypto-Related Inquiry Need Separate Counsel?

Not necessarily. A common issue in SEC crypto inquiries is whether an individual employee can rely on his or her company’s counsel, or whether separate counsel is required. Generally, an individual employee can rely on his or her company’s counsel unless he or she has a defense that is not based on the company’s defense, or if he or she has a reason to cooperate with the SEC’s investigators in exchange for favorable treatment.

Do Foreign Token Issuers Need to Consider OFAC Sanctions?

Yes. Foreign token issuers must separately consider the impact of any OFAC sanctions restrictions. Of the many types of sanctions restrictions imposed by OFAC, those that restrict transactions with U.S. persons present the most significance for issuers that are targeting U.S. investors and that are trying to avoid SEC registration.

How Can an SEC Crypto Investigation End?

If the SEC declines to pursue an enforcement action, the SEC staff will typically issue a “no-action letter” that states so. While a no-action letter is the ideal outcome, obtaining a no-action letter often requires significant effort, and this is a reason to engage experienced defense counsel to lead the process. If you engage our firm to represent you in an SEC crypto investigation, we will lead your defense from the very beginning.

Does the SEC Have a Policy for Evaluating Voluntary Disclosures and Self-Reporting in Crypto-Related Enforcement Investigations?

Yes. The SEC outlines its self-disclosure and cooperation policy for SEC enforcement investigations in its Seaboard Report. While this report predates cryptocurrency, it is particularly important in cryptocurrency-related investigations, and target’s cooperation efforts should focus on addressing the specific factors that the SEC staff identifies as being most relevant to its evaluation of the target’s conduct.

What Factors Does the SEC Evaluate When Assessing an Issuer’s Cooperation Under the Seaboard Report?

The Seaboard Report outlines several factors for SEC staff to evaluate, including:

• Policing and self-policing of misconduct;
• Reporting and self-reporting;
• Remediation; and,
• Copping with and cooperating during the SEC’s investigation.

What Does Remediation Look Like in the Context of an SEC Crypto Investigation?

Remediation can involve several different types of efforts depending on the specific circumstances at hand. Remediation includes (but is not limited to):

• Ending and preventing any misconduct;
• Disciplining personnel responsible for misconduct; and,
• Strengthening internal controls.

Do Self-Policing, Reporting, Remediation, and Cooperation Efforts Prevent SEC Enforcement Action?

Not necessarily. While these efforts can reduce the likelihood of an enforcement action, they do not automatically guarantee a declination. Similarly, in the event of an enforcement action, these efforts do not automatically eliminate the SEC’s ability to impose available remedies.

What Are the Remedies for Successful SEC Enforcement Actions?

If the SEC prevails in an enforcement action, the available remedies are substantial. These include statutory fines, pre-judgment interest, asset freezes, officer-and-director bars, and disgorgement.

Do SEC Settlements Involve Monetary Payments?

Yes. If the SEC reaches a settlement with a target, a provision of the settlement agreement will almost always require the payment of monetary fines and disgorgement.

Do SEC Settlements Involve Other Requirements as Well?

Yes. Settlements often include provisions that impose various compliance obligations on the target as well. Compliance undertakings may include hiring outside compliance consultants, conducting an internal compliance audit, and developing and implementing a comprehensive compliance policy.

How Do Successful SEC Enforcement Actions Affect a Target’s Ability to Sell and/or Issue Crypto-Assets and/or Execute Other Market Transactions?

In federal court, successful enforcement actions can expose targets to conduct injunctions that prohibit them from engaging in various cryptocurrency-related transactions. For example, issuers may face conduct injunctions prohibiting the issuance of digital assets, and market participants may face conduct injunctions prohibiting any other crypto-related transactions.

What Other Remedies Can Federal Court Judges Impose Against Defendants in SEC Enforcement Actions?

In addition to conduct injunctions, federal court judges have the ability to impose officer-and-director bars. With respect to disgorgement, the Supreme Court’s decision in Liu v. SEC (2020) requires disgorgement amounts to be tied to the wrongdoer’s net profits, minus any lawful deductions.

How Long Can an SEC Crypto Investigation Last?

There is no statute providing a maximum duration for an SEC investigation, and there is no statute mandating that SEC staff promptly charge a target or close an investigation. While the SEC will typically close an investigation after a few years, the SEC can keep investigations open indefinitely. This is why working with the SEC during the investigative process is so important.

Does the Prolonged Silence of SEC Staff Members Mean That the SEC’s Crypto-Related Enforcement Investigation is Closed?

Not necessarily. If it has been months or years since SEC staff members have reached out to a target’s defense counsel, it is important to inquire about the status of the investigation. Prolonged silence from the SEC is not confirmation that the investigation has been formally closed.

Get Advice on Your Situation

If you want someone to look at the specifics of your case, Spodek Law Group handles federal criminal defense nationwide from New York and Los Angeles. The firm has been practicing since 1976 and its motto is simple: we owe loyalty to only you. Call 212-300-5196.