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On July 21, 2022, the Securities and Exchange Commission (SEC) announced "insider trading charges against a former Coinbase product manager, his brother, and his friend for perpetrating a scheme to trade ahead of multiple announcements regarding certain crypto assets that would be made available for trading on the Coinbase platform."

To refresh your memory, "Federal securities laws prohibit the purchase or sale of securities by persons who are aware of material nonpublic information about a company, as well as the disclosure of material, nonpublic information about a company to others who then trade in the company's securities."

The SEC's actions have raised some questions and criticisms. Are cryptocurrencies securities? If so, what are the SEC's specific criteria in making that determination? To date, the Howey Test has been the generally accepted methodology. Traditional assets have to meet four major criteria to be considered a security. Is there an investment of money? Is that investment in a common enterprise? Is there an expectation of profits? And is the expectation of profits created by a third party?

Most cryptocurrencies meet the first three criteria. You will invest money in a named coin and you will expect to make a profit, but the vast majority of crypto and DeFi projects are decentralized, and there is no single third-party creating the expectation of profit. Since the vast majority of cryptocurrencies do not meet the Howey Test standard, they probably do not come under the jurisdiction of the SEC.

Is the SEC guilty of "regulation by enforcement?" Caroline D. Pham, commissioner of the Commodity Future Trading Commission (CFTC), immediately published a statement accusing the SEC of doing so.

This is serious business, and Commissioner Pham's statement is worth a read. If you have an opinion about crypto regulation, now is the time to make your voice heard. Remember: crypto and smart contracts (including NFTs) are data. Regulation of crypto dramatically overlaps with data privacy regulation, and any rules will also impact innovation. Contact your local, state, and federal lawmakers and let them know what you want.

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