The industry has been arguing that it needed “regulatory clarity” for years, but the phrase is a little misleading. To the untrained ear, it sounds like the industry wants new rules. However, three lawyers argue that the remedy is a fair application of the ones already on the books.

Now that the SEC has decided to listen to those ideas via its newly-established Crypto Task Force, we’re going to start to see which of those ideas could become reality.  

Is The SEC About To Reverse Its Position On Howey?

A group of lawyers made the case to re-interpret how securities laws apply to crypto before the SEC Crypto Task Force on Monday.

A group of lawyers argued before the SEC’s Crypto Task Force on Monday that most cryptocurrency activities should fall outside of the agency’s jurisdiction. In making their case, Morrison Cohen’s Jason Gottleib, New York University’s Andrew Hinkes, and George Mason University’s J.W. Verrett suggested that the regulator under former Chairman Gary Gensler overstepped its authority and misread the law while enacting a series of enforcement actions targeting virtually every aspect of the industry. 

“Over the last four years, the SEC has twisted the law to play gotcha with crypto developers and exchanges. These reforms help the SEC undo the Gordian knot,” explained Verrett, cautioning that he spoke for himself and not his co-authors. “This will pave the way for future exemptions and future partnerships between crypto exchanges and traditional exchanges in a more adaptive regulatory environment.” 

Read More: Why the SEC's Dismissal of the Coinbase Case is a Total Win for Crypto

Enter the Crypto Task Force

SEC Acting Chair Mark Uyeda launched the Crypto Task Force last month in order to workshop and develop comprehensive regulations for crypto tokens. The group, led by commissioner Hester Peirce, has begun taking meetings with the public to gather input on how to form a regulatory framework for assets.

The primary subject of the recommendations on Monday was a re-evaluation of how the regulator applies the Howey Test, an 80-year old legal standard set by the U.S. Supreme Court used to determine when an asset is a security, to crypto. The Howey Tests consists of four prongs. Whether there is:

• An investment of money

• In a common enterprise

• With the expectation of profit

• Derived by the efforts of others

In a memo sent to the commission and seen by Unchained in conjunction with the meeting, the lawyers specified multiple areas where they believe the SEC should re-evaluate the applicability of the Howey Test to many areas of crypto including staking, airdrops, and NFTs. The authors also suggest that the regulator narrows definitions of who is considered a “broker” or “dealer” of securities assets, an interpretation the Blockchain Association called “DeFi-killing.” 

Read More: Trump Taps Paul Atkins for Next SEC Chair, Making Good on His Crypto Promises

In their submission to the SEC Crypto Task Force, the authors asked the commission to codify their interpretations in writing, for example through an interpretive release or memorandum of understanding. 

There was no word yet on the reaction from the SEC attendees. If the SEC commissioners decide to implement the lawyers’ recommendations, it would still likely take several months before they published said interpretations. Trump’s nominee for SEC Chair, Paul Atkins, is yet to be confirmed, and would also likely weigh in on the issue. 

SEC Starts to Stand Down

However, the industry is not having to wait very long to see progress as the SEC is already pivoting away from the Biden administration’s aggressive posture towards crypto. Last week the SEC decided to drop its lawsuit against Coinbase and end an investigation into NFT marketplace OpenSea. Additionally, it has requested a 60-day pause in its case against the world’s largest crypto exchange Binance, and just yesterday dropped its investigation into leading decentralized exchange Uniswap. Finally, the SEC filed a motion last Wednesday to dismiss its appeal of a ruling that would restrict its ability to apply securities laws to DeFi platforms.  

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