How does the SEC determine whether a cryptocurrency is a security?+
The SEC applies the Howey test; an investment contract exists when there is (1) an investment of money (2) in a common enterprise (3) with an expectation of profits (4) derived from the efforts of others. Application of this test to specific crypto tokens is vigorously contested and has been the subject of ongoing litigation against exchanges and token issuers.
The SEC filed an emergency action against our crypto fund yesterday and is seeking a TRO. What do we do in the next 48 hours?+
Move immediately. An SEC emergency TRO action is designed to be granted before you are served or have an opportunity to respond; courts routinely grant the TRO, asset freeze, and receiver appointment within hours or days of filing. Your window to contest the TRO or its scope is extremely narrow. In the next 48 hours: (1) Retain experienced securities enforcement defense counsel who have handled SEC emergency actions before; (2) Do not move, transfer, or access any funds or assets, any transaction after the TRO is entered may constitute contempt of court; (3) Preserve and secure all business records; (4) If a receiver has been appointed, the receiver now controls the business, your counsel will communicate with the receiver about operational continuity; (5) Your counsel will file an immediate motion to dissolve or modify the TRO, contesting the SEC's showing of likelihood of success on the merits and demonstrating that the asset freeze is overbroad. Courts can and do modify asset freezes to allow access to funds for living expenses and legal fees. Having experienced counsel already engaged before an emergency action is filed is the only reliable way to be prepared for this proceeding.
Can the government freeze my crypto assets during an investigation?+
Yes. In SEC and CFTC emergency actions, courts routinely freeze assets, including digital assets held at exchanges and custodians, and appoint receivers within days of filing, often before the defense is heard. The DOJ separately uses seizure warrants against wallets and exchange accounts. Custodied assets are the most exposed, the response window is measured in days, and the first hearing frequently determines who controls the assets for the life of the case.
Do U.S. regulators have jurisdiction over an offshore crypto exchange or fund?+
Being organized offshore rarely defeats U.S. jurisdiction. Regulators and prosecutors assert jurisdiction based on U.S. customers, marketing into the U.S., U.S.-dollar transactions clearing through U.S. banks, U.S.-based employees or infrastructure, and trading that touches U.S. platforms. Recent enforcement history is full of offshore exchanges and funds defending U.S. actions, so structure alone is not a defense; conduct and contacts are what matter.
