From Enforcement to Engagement: How the SEC Is Rethinking Crypto Regulations

Dmitriy Smirnov

April 7, 2025

Firm News

On March 21, 2025, the SEC held its first-ever crypto roundtable, signaling a shift in its approach to digital asset regulation. The event, titled “How We Got Here and How We Get Out – Defining Security Status,” brought together a wide range of voices to examine how crypto assets should be regulated under federal securities laws.

For the uninitiated, an SEC roundtable is a public forum where regulators, industry experts, and stakeholders discuss complex policy issues. It is designed to promote engagement, transparency, and dialogue with the public. This marks a welcome change from the SEC’s past approach, especially in crypto, where policy was often shaped behind closed doors through enforcement.

The Crypto Task Force and the Shift to Engagement

The SEC’s new Crypto Task Force represents a major change. For years, the agency focused on regulation through enforcement. Guidance came mainly through subpoenas. That approach left innovators uncertain and cautious. Now, with public roundtables, the SEC is opening the door to real engagement.

At the March roundtable, participants ranged from crypto skeptics like John Reed Stark to advocates like Coy Garrison (Steptoe), Rodrigo Seira (Cooley), and Professor Chris Brummer (Georgetown Law). The format encouraged both disagreement and consensus. This is a sharp change from the past “security or not” framing. For digital asset developers and lawyers, it felt like a step toward clarity.

Moving Away from Regulation by Enforcement

For years, the SEC seemed determined to set crypto policy through lawsuits, which created legal confusion. Commissioner Hester Peirce described it as a regulatory “escape room.” Innovators were unsure what rules applied, or when.

Commissioner Mark Uyeda pointed to inconsistencies in court decisions. For example, some courts required pooling of funds under the Howey test. Others did not. Compare Revak v. SEC Realty Corp., 18 F.3d 81 (2d Cir. 1994), with SEC v. SG Ltd., 265 F.3d 42 (1st Cir. 2001). Courts also differ on whether promoter efforts must happen post-sale. See SEC v. Life Partners, Inc., 87 F.3d 536 (D.C. Cir. 1996) and SEC v. Mutual Benefits Corp., 408 F.3d 737 (11th Cir. 2005).

The roundtable made clear that a purely enforcement-based system is simply not sustainable. Predictable rules are essential for markets to function. The SEC’s recent statements on meme coins and mining activities suggest it is open to rethinking its approach.

Rethinking the Howey Test

The Howey test defines an investment contract as an investment of money in a common enterprise with the expectation of profits from others’ efforts. It was created in 1946. Back then, it addressed sales of orange grove interests.

Today, it doesn’t fit digital assets well. Tokens often grant staking rights or access to decentralized platforms. These do not always resemble stocks. Yet, under Howey, they can still be labeled securities.

Howey assumes centralized promoters and bilateral contracts. That framework struggles with DAOs, pseudonymous developers, and smart contracts. Applying Howey broadly can misclassify digital tools as investment schemes. I explored this issue back in 2023 here.

Legal experts like Teresa Goody Guillén (BakerHostetler) suggest a more functional approach. She argues digital assets should be classified by use, risk, and behavior in the market. Her view: these technologies are part of the Fourth Industrial Revolution. The law must adapt accordingly.

This doesn’t mean lowering investor protections. It means updating them. A token for file storage or governance should not be treated the same as a share of stock.

The Road Ahead: A Framework for Change

Blockchain is part of a new economic era. It changes how we manage finance, data, and governance. Regulation must keep up.

The SEC roundtable acknowledged this and showed a willingness to evolve. Future sessions could include the CFTC and more market participants. Together, they could shape a framework that supports innovation and protects investors.

What This Means for Innovators

Builders in the crypto space face both opportunity and risk. The SEC’s roundtable shows progress, but legal uncertainty remains. Working in this space requires careful risk management. Still, the message is clear: the SEC is listening. A better regulatory framework is possible. Innovators acting in good faith shouldn’t be punished for building the future.

At the same time, defense counsel must continue to evaluate each case closely. Until regulation provides clarity, they must assess the risk of enforcement, the potential for criminal exposure, the strength of the SEC’s position, and the client’s tolerance for risk. Caution remains essential as policy continues to evolve.

Contact Us for SEC Investigation Help

If you receive a Wells notice, an SEC subpoena for documents or testimony, a FINRA 8210 request, a FINRA on-the-record (OTR) interview request, or a similar inquiry from a state regulator, such as Florida’s Office of Financial Regulation (OFR), act immediately. Contact Fridman Fels & Soto, PLLC to speak with an experienced SEC defense attorney. Prompt action is critical to protect your rights whether you need an attorney skilled in insider trading defense or to respond to a subpoena. 

Alejandro Soto is a former federal prosecutor and senior official with the SEC. He leads Fridman Fels & Soto, PLLC’s Securities Litigation and SEC Defense Practice Group and is admitted in Florida and Washington, DC.