In a Feb. 25, 2026, Law360 article, McGuireWoods partner David Hirsch analyzed a first-of-its-kind jurisdictional theory arising from a recent SEC cryptocurrency enforcement action.
On Dec. 22, 2025, the SEC filed a lawsuit in the U.S. District Court for the District of Colorado — SEC v. Morocoin Tech Corp. — alleging that three investment clubs and four crypto trading platforms committed fraud in violation of the U.S. securities laws. The case raises fundamental questions about when cryptocurrency transactions fall within the SEC’s enforcement authority, Hirsch explained.
Morocoin presents a novel legal theory: that statements made by third parties unaffiliated with a crypto project could convert that project’s token sales into securities offerings, with far-reaching implications for how the “Howey test” is applied to digital assets. The U.S. Supreme Court, in its 1946 decision in SEC v. W.J. Howey Co., 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.
“Finding that statements made by strangers to a project are sufficient to satisfy the expectations of profits prong of Howey “has profound implications for crypto markets and more broadly for other nonsecurities products,” Hirsch wrote. “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 adviser represents that, with demand for pickleball increasing, the transferable club membership will be more valuable in the future.”
Hirsch also addressed the concept of “morphing” — the idea that an asset’s status as a security could change over time based on evolving facts — and cautioned that such fluidity creates significant compliance and regulatory challenges for the cryptocurrency industry.
Before joining McGuireWoods, Hirsch served as chief of the SEC Division of Enforcement’s Crypto Assets and Cyber Unit, where he led investigations and enforcement actions involving digital assets, cybersecurity incidents and emerging technologies. His firsthand experience at the SEC gives him unique insight into how the agency approaches cryptocurrency regulation and enforcement, making him a leading voice on these critical issues.