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Since the start of the current administration, the SEC has made clear through statements and actions that it takes a much more constrained view of its jurisdiction over the offer and sales of crypto assets than prior administrations pursued.[1] However, leadership has also consistently maintained its commitment to bringing enforcement actions against “bread-and-butter” crypto fraud. These contrary positions present a jurisdictional tension, and a recent enforcement action highlights the challenges ahead for the agency.
The SEC filed a lawsuit on Dec. 22, 2025, SEC v. Morocoin Tech Corp. et al, alleging that three investment clubs and four crypto trading platforms committed fraud in violation of US securities laws.[2] The defendants allegedly promised retail investors that buying crypto tokens associated with multiple projects would generate outsized profits. The SEC alleges the offerings were fake, and the defendants stole all the retail investors’ money. The factual allegations clearly describe serious fraud and resulting harm, but it is less clear how the facts alleged establish that the fraud involved a securities transaction, given changes to how the agency views investment contracts involving crypto assets and the application of the Howey test.
Jurisdictional Threshold
As a preliminary matter, the SEC does not have universal fraud authority or even the authority to police investment fraud writ large. The first question the SEC must answer before pursuing enforcement is always jurisdictional: whether the allegations involve the offer or sale of a security. If the answer to that question is no, the SEC lacks the legal authority to proceed.
Allegations Regarding SEC Jurisdiction
The complaint alleges that victims were recruited and defrauded by “Club Defendants” who operated four investment clubs purportedly led by financial professionals. In social media groups, the Club Defendants recommended that investors buy crypto tokens using crypto trading platforms (the “Platform Defendants”) that were also allegedly fraudulently operated to steal investor funds, rather than execute the crypto trades as promised.
The Club Defendants recommended that investors use the Platform Defendants to buy crypto tokens issued by three projects: NeuralNet (“NNET”), SatCommTech (“SCT”) and HumanBlock (“HMB”). The Club Defendants claimed the projects were selling those tokens as Security Token Offerings (“STOs”) akin to IPOs, telling investors that “one involves the public offering of new stocks, while the other involves the initial offering of new coins!”[3] The SEC alleges that, unbeknownst to investors, the so-called STOs and underlying projects were total fabrications.
The Atkins – Howey Paradigm
The SEC asserts jurisdiction in this complaint based on allegations that the token sales associated with the three crypto projects were investment contracts. The Supreme Court in Howey defined an investment contract as an investment of money in a common enterprise with an expectation of profits based on the efforts of a third party.[4]
Chair Atkins has recently stated, under his “Project Crypto” initiative:
While most crypto assets are not themselves securities, crypto assets can be part of or subject to an investment contract. These crypto assets are accompanied by certain representations or promises to undertake essential managerial efforts that satisfy the Howey test… A purchaser’s reasonable expectation of profits depends on the issuer’s representations or promises to engage in essential managerial efforts.[5]
Commissioners Peirce and Uyeda have also argued that investment contracts related to the offer and sale of crypto tokens only exist where promoters create reasonable expectations of profits to be derived from their managerial efforts.[6]
Alleged Essential Managerial Efforts
As quoted in the complaint, NNET stated generally that it would “combine[] advanced neuroscience, artificial intelligence and robotics” to “create an efficient and intelligent way of human-computer interaction to improve people’s quality of life and promote scientific and technological progress.”[7] It described allocating tokens to liquidity, marketing, and operations, and touted a team of purported experts attached to the project. SCT represented it was revolutionizing communications technology, was led by experts and “committed to … providing investors with efficient and reliable communication services.”[8] HMB provided a roadmap to create and commercialize humanoid robot hardware powered by “robust blockchain architecture.”[9] HMB also touted its purported project team and disclosed how it would allocate tokens to investors, team members and major investors. Those are the only allegations in the complaint that cite claims the projects made about their plans.
If these vague representations regarding promoters’ efforts are sufficient, then effectively any statement of intent to build anything with a token attached to it would satisfy the “essential managerial efforts” prong of Howey. That would be a surprising position for this SEC administration to adopt, given its focus on supporting innovation and distinguishing tokens that power technology or networks, or serve as digital tools, from investment-like tokens where investors pursue profits in reliance on specific promises of managerial efforts. If general statements of future intent satisfy the managerial efforts prong, it is hard to understand on what basis the SEC dismissed a series of litigation cases involving crypto offerings that included much more specific and detailed managerial efforts allegations.[10]
The Third-Party Problem
Even if these allegations are sufficient to establish reasonable expectations of essential managerial efforts, the complaint does not cite any claims made by the projects themselves, NNET, SCT, or HMB, regarding how the projects or tokens would generate profits for token purchasers from those efforts. The SEC referenced claims made by the projects to establish the investment of money and common enterprise elements of Howey. But concerning the expectations-of-profits prong, for each project the SEC references, the only representations about growth, returns and security token offerings were statements made by the club defendants. The SEC does not allege NNET, SCT, or HMB said anything about profits or in any way linked their tokens to anticipated profits, or described the offerings as STOs. Here, the complaint does not allege that the Club Defendants were explicitly or implicitly authorized to make claims on behalf of the projects or that they had any affiliation with the projects at all.
As a result, this complaint contends that a crypto project offering that does not itself satisfy all the Howey prongs could become a securities offering based only on claims made without the project team’s knowledge or agreement. This appears to be a wholly novel legal theory that has profound implications for crypto markets and more broadly for other non-securities products. It is as if a country club membership could be converted into an investment contract, and therefore a security, because one aspiring member’s financial advisor represents that with demand for pickleball increasing, the transferable club membership will be more valuable in the future.
That cannot be the law, or every investment could be converted into a security based solely on what a third party says about its operations and prospects, either at issuance or in the future. Howey has consistently been interpreted by courts to depend on investors’ reasonable expectations. The SEC has not explained how a stranger to a project, speaking about something over which they have no control or connection, can create those reasonable expectations. The complaint offers no insight into how a stranger’s speech can create legal obligations for project teams, who, if deemed to be issuing securities, would have to register the offerings or qualify for an exemption from registration, in addition to other significant and expensive steps. SEC leadership has, through public statements, been narrowing its jurisdiction over crypto asset offerings, so the expansive implications of this complaint may reflect unintended consequences rather than a deliberate policy shift.
American investors and markets are safer because of the staff’s exceptional ability to investigate and prosecute securities fraud, including fraud involving crypto asset securities. That is not a controversial view. Crypto market participants are among the most vocal supporters of effective policing of fraud to deter conduct that harms investors and degrades market integrity.[11] The named defendants here are all defunct corporations, three of which were registered by an unidentified “individual located in Beijing, China.” It is therefore unlikely that the complaint will be litigated on the merits. But if the SEC attempts to employ this jurisdictional theory against a defendant that chooses to fight, the SEC is likely to lose, and in the process create precedent that could limit its jurisdiction going forward.
Schrödinger’s Assets – Security Status That Changes with Observer
Chair Atkins expressed support recently for the concept that investments offered pursuant to investment contracts could “morph” into non-securities over time.[12] For example, when it is clear that the promoter will take no further efforts to generate profits or if the basis on which profits were expected ceases to apply. This makes clear logical sense and evokes reasoning then-SEC Director of Corporation Finance Bill Hinman applied to crypto assets in 2018.[13] But the SEC has not typically invoked this theory in the years that followed.
That reluctance may stem in part from the dilemma this complaint highlights. If an investment can convert from a security to a non-security based on changed facts, then the reverse could also be true. An asset sold as a non-security could conceivably “re-morph” into a security if changes to the project create reasonable expectations among investors that they will get profits from a promoter’s new managerial efforts. A world in which an investment can convert from security to a non-security and back again creates potentially insurmountable complexities in practice.
Depending on whether the asset morphed or re-morphed, issuers would need to dynamically change compliance policies, regulatory registrations, and disclosure content. Investors would need to assess how security versus non-security status impacts valuation, good title, liquidity, and suitability. Regulators would need to either cleanly transfer oversight or otherwise grapple with shifting and potentially concurrent jurisdiction.
This complaint introduces the potential for re-morphing that may involve only a subset of token purchasers, as the profit-focused claims were only available to members of the Club Defendants’ social media groups. Investors that did not receive those profit claims likely would not have formed investment contracts with the promoters, because the Howey elements are not met without reasonable expectations of profits. This creates the potential that tokens could be both sold pursuant to an investment contract for some investors and not sold pursuant to an investment contract for many others, depending on what the investor observed about the offering.
If that is the law, securities status is ever fluid in a way that will make development and innovation more expensive and unpredictable.[14] Crypto ventures need clear rules that are consistently applied to support the level of investment needed to innovate and flourish. It is possible that SEC leadership’s approach to morphing and re-morphing can be explained in a way that resolves this seeming quantum level uncertainty, but that issue was not addressed in this complaint and the agency has not yet offered guidance to help resolve the question.
This article was also published as an Expert Analysis in Law360.
[1] The SEC and the Commodity Futures Trading Commission are pursuing efforts to harmonize questions of regulatory jurisdiction over crypto assets and transactions. Opening Remarks at Joint SEC-CFTC Harmonization Event – Project Crypto (Jan. 29, 2026)
[2] SEC Charges Three Purported Crypto Asset Trading Platforms and Four Investment Clubs with Scheme That Targeted Retail Investors on Social Media (Dec. 22, 2025)
[3] Morocoin Tech Corp.; Berge Blockchain Technology Co., Ltd.; Cirkor Inc.; AI Wealth Inc.; Lane Wealth Inc.; AI Investment Education Foundation Ltd. at para 58
[4] SEC v. Howey Co., 328 U.S. 293 (1946)
[5] Speech by Chair Atkins on The Securities and Exchange Commission’s Approach to Digital Assets: Inside “Project Crypto” (Nov. 18, 2025)
[6] “The ‘contract, transaction or scheme’ by which the token is sold may constitute an investment contract; however, the object of the investment contract—the token—may not bear the hallmarks of a security. Running on Empty: A Proposal to Fill the Gap Between Regulation and Decentralization Commissioner Hester M. Peirce (Feb. 6, 2020); Omakase: Statement on In the Matter of Flyfish Club, LLC (Sept. 16, 2024) (dissenting from enforcement action and arguing that tokens at issue were not in their view securities and the specific representations regarding managerial efforts did not create an investment contract.)
[7] Morocoin Tech Corp.; Berge Blockchain Technology Co., Ltd.; Cirkor Inc.; AI Wealth Inc.; Lane Wealth Inc.; AI Investment Education Foundation Ltd. at para 62.
[8] Id. at para 82
[9] Id.
[10] In those dismissals the SEC frequently cited exercise of its enforcement discretion as supporting its action. It is well established that the SEC has discretion to act based on its own priorities and legal interpretations but exercising that discretion without explanation for why similar things are being treated differently has previously led to successful legal challenges based on claims that the SEC applied discretion in a manner that was arbitrary and capricious. See, e.g. Coinbase Inc. v. SEC, No 23-3202 (3rd Cir., 2024).
[11] These crypto market participants also express a desire to balance discussions regarding fraud with a recognition that fraud occurs in all financial markets and represents only a tiny fraction of overall crypto related activity.
[12] Speech by Chair Atkins on The Securities and Exchange Commission’s Approach to Digital Assets: Inside “Project Crypto” (Nov. 18, 2025)
[13] Digital Asset Transactions: When Howey Met Gary (Plastic) (June 14, 2018)
[14] The SEC has typically navigated issues about different investors having access to different information by treating all claims made to the general public as being available to all investors. Claims made only behind closed doors or to members-only groups have always posed challenges for investment contract analyses. Those challenges become much greater if claims made by purported financial professionals to private investment clubs can satisfy Howey.