SEC v. Binance: Statutory and Legal Framework

BACKGROUND

I. STATUTORY AND LEGAL FRAMEWORK

36. As the Supreme Court recently reemphasized, the Securities Act and the Exchange Act are the “backbone of American securities laws.”

37. The Securities Act and the Exchange Act define “security” to include a wide range of assets including “investment contracts.” Investment contracts are instruments through which a person invests money in a common enterprise and reasonably expects profits or returns derived from the entrepreneurial or managerial efforts of others. As the United States Supreme Court noted in SEC v. W.J. Howey Co., Congress defined “security” broadly to embody a “flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.” 328 U.S. 293, 299 (1946). Courts have found a variety of novel or unique investment vehicles to be investment contracts, including those involving orange groves, animal breeding programs, cattle embryos, mobile phones, enterprises that exist only on the Internet, and crypto assets (which crypto asset market participants at times also label “cryptocurrencies”).