Discover how the powerful influence of the SEC shapes the US and global financial markets, including its growing control over the crypto market. Explore the SEC’s origins and the importance of US law knowledge and jurisprudence for crypto project success. Our comprehensive article is a must-read for anyone interested in the inner workings of the financial industry.

Source: © 2023 D&A Partners

Are you curious about the functioning of the U.S. securities market and its influence on the global financial asset market? The Securities and Exchange Commission (SEC) is the key regulator tasked with maintaining fair and transparent trading practices.

However, the SEC’s impact extends beyond the U.S., as the country represents more than 50% of the global stock market. Consequently, the SEC’s decisions and initiatives have significant global effects, influencing investors and traders worldwide.

The SEC’s investigative tools and methods have become an international benchmark, with the regulator targeting everyone from Bloomberg for securities valuation errors to major Wall Street advisors.

  • In 2022 alone, the SEC imposed fines of over $6 billion, demonstrating its unparalleled authority in the economic sphere.

Now, the SEC has set its sights on the crypto market:

  • 30 cases related to cryptocurrencies were filed in 2022, a 50% increase from the previous year.
  • Digital asset marketers have also faced record fines totaling $2.61 billion.
  • In 2023, the SEC plans to increase its control over the crypto industry even further.

In today’s article, we’ll explore the roots of the SEC, highlighting its unexpected link to orange groves and the renowned Howey test. Additionally, we’ll discuss why a thorough grasp of U.S. law and jurisprudence is crucial for the success of any crypto venture. Don’t miss this in-depth examination of the SEC’s vital role in the financial market — check out our piece today!


The progression of exchange trade has followed similar patterns across different countries, marked by these key milestones:

  • 16th-17th centuries: Stock exchanges are dominated by state and municipal bonds, with stocks making up a small percentage of traded securities.
  • Late 19th century: The rise of joint-stock companies led to shares gradually surpassing bonds as the primary traded security.
  • 20th century: The securities market evolved as international securities like Euro notes, shares, and Eurobonds emerged in the 1970s.
  • The 1980s: Securitization is gaining momentum, transforming banks’ assets into securities.

As the securities market grows, so does the need for regulation. With its status as a leading financial center, the US has been particularly effective in developing its regulatory framework.


The stock market crash and the Great Depression in the United States highlighted the need for federal securities legislation. Key points include:

  • Prior to the stock market crash, companies issued massive amounts of stocks, promising soaring values.
  • Brokers sold these stocks to investors based on promises of substantial profits, with little disclosure of the issuing companies’ actual information.
  • Often, promises of “exorbitant” returns were unfounded or even fraudulent.
  • The speculative bubble, crisis, and widespread investor panic in 1929 led to the stock market’s collapse.

These events underscored the significance of implementing proper regulations to ensure transparency and safeguard investors in the securities market.

Source: © 2023 D&A Partners


In the 1930s, the Roosevelt administration introduced regulatory measures to curb speculative practices in the financial industry. Two key acts were passed during this time: the Securities Act of 1933 and the Securities Exchange Act of 1934. These acts featured several major provisions, such as:

  • A comprehensive definition of “security” covers various financial instruments.
  • Compulsory disclosure requirements for companies and securities issuers, obliging them to provide information about themselves and their securities.
  • Imposition of liability on both issuers and sellers of securities for false or misleading information.

These laws led to the establishment of the Securities and Exchange Commission as a federal agency responsible for registering securities and regulating the financial industry.


The Securities Act mandates that any securities must be registered with the SEC before public offering or sale. This registration process consists of two stages:

  • The issuer submits information, forming the basis of the prospectus provided to potential investors.
  • The issuer provides additional information that won’t be included in the prospectus but will be accessible to the public.

The registration requirements are comprehensive and cover various aspects of the issuer’s business, such as past performance, information about officers, audited financial statements, and more. The SEC holds the authority to prosecute issuers of unregistered securities and to seek a ban on selling such assets.


In 1946, the Supreme Court presided over a groundbreaking case that forever altered US securities regulation. The case, SEC v. W.J. Howey Co., revolved around the sale of land with thriving orange groves to eager investors, who agreed to lease the land back to the seller after the transaction. Investors were promised a share of the profits from the orange sales.

However, did this truly qualify as a securities offering?

Howey believed that the transaction did not meet the definition of securities and contested the SEC’s allegations of offering unregistered securities. The lower courts initially sided with Howey, but the SEC persisted and appealed to the Supreme Court.

A fascinating analysis of the transaction’s economic substance ensued, establishing the “Howey Test.” This test determined that a contract is considered a security if it involves:

  1. an investment of money;
  2. in a joint enterprise;
  3. with the intention of earning profits;
  4. through the efforts of a third party or promoter.

And the verdict?

The Supreme Court ruled in favor of the SEC, and the Howey Test has since become a foundational principle of US securities regulation.



The offering of unregistered securities to investors has been significantly reduced thanks to regulatory oversight, established court practices, and the efforts of the SEC. In recent years, only a few cases have involved this type of illicit activity. Here are some examples:

  • In 2013, two U.S. citizens were sentenced to prison for selling unregistered shares of, Inc.,, and Rose Laboratories based in Tujunga.
  • In 2022, a California attorney pleaded guilty to the illegal sale of more than $1.3 million of unregistered stock in a medical company based in Massachusetts.

While the market for classic financial instruments is well-understood and controlled by authorities, the same cannot be said for the cryptocurrency market.

“Cryptocurrency is a very speculative asset class. We’ve known this for a long time. The ups and downs of this speculative asset class, Bitcoin, and hundreds of other tokens. And [with] many of these tokens, the investing public is hoping for a return. Just like when they invest in other financial assets, we call them securities. Many of these financial assets, crypto financial assets, have the key attributes of security. So some of them are under the Securities and Exchange Commission. Some, like Bitcoin… my predecessors and others have said they are a commodity.” — Gary Gensler, the U.S. Securities and Exchange Commission Chairman

Gary Gensler

In 2017, the SEC proposed to regulate ICOs (initial public offerings of tokens) under the Securities Act and clarified the matter.


In recent years, the cryptocurrency market has been under the watchful eye of the SEC. The rapidly evolving landscape of digital currencies and their surging popularity has led to regulatory attention and several high-profile cases.

One such case that captured headlines involved Ripple, a prominent player in the crypto industry. In 2020, the SEC sued Ripple for allegedly violating securities laws by selling its XRP tokens without proper registration. This case is still in court and highlights the complex intersection of cryptocurrency, innovation, and regulation.

As the case unfolded, the SEC argued that Ripple and its executives sold over $1.3 billion worth of XRP tokens, treating them as securities without complying with the necessary registration requirements. On the other hand, Ripple claimed that XRP is a digital currency, not a security, and thus should not fall under the purview of the SEC.

The Ripple case has had ripple effects (pun intended) across the cryptocurrency market, raising questions about the regulatory status of other cryptocurrencies and putting pressure on industry players to ensure compliance with securities laws.

SEC Chairman Gary Gensler has signaled a more proactive approach to cryptocurrency regulation in response to the evolving landscape. In April 2022, he noted that major crypto exchanges were “probably trading in securities,” which sent a clear message to the industry.


In summary, this article has explored securities regulation’s evolution, the SEC’s importance, and its growing influence in cryptocurrencies. Since the Ripple case, the SEC has intensified its efforts to regulate the crypto industry.

As a result, stakeholders in the cryptocurrency market must exercise utmost caution in adhering to regulatory compliance and requirements. The industry will likely face increased scrutiny from the SEC in the coming years, making it crucial for businesses and investors to stay informed about evolving regulations and best practices.

With vigilance and a commitment to transparency, the future of the securities market and the growing cryptocurrency sector can be bright, fostering innovation while ensuring investor protection and market integrity.

Ekaterina Smirnova
Yuriy Brisov

This article was written by Ekaterina Smirnova & Yuriy Brisov, Partners at D&A. Visit to learn more about our team and the services.

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