Washington D.C., April 2025: A crucial legal argument has been presented to the U.S. Securities and Exchange Commission (SEC), challenging a foundational premise of its regulatory approach to digital assets. In a detailed public submission, attorney Teresa Goody Guillen contends that the act of holding a cryptocurrency solely in anticipation of a price increase should not, by itself, subject that asset to federal securities laws. This position strikes at the heart of the ongoing debate over how to classify and regulate thousands of digital tokens, a debate with profound implications for investors, developers, and the future of financial innovation in the United States.
Crucial Legal Argument Challenges SEC’s Core Premise
The submission, filed to the SEC’s dedicated crypto asset task force, centers on the application of the Howey Test. This is the Supreme Court-derived standard used for decades to determine if an arrangement constitutes an “investment contract” and thus a security. The test requires an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others. Guillen, a lawyer with extensive experience in cryptocurrency regulation, argues that the SEC and some courts have improperly expanded the third prong of this test in the digital asset context. She posits that a purchaser who simply buys and holds a token like Bitcoin or Ethereum, hoping its market price will rise, is engaging in a form of passive economic speculation. This activity, she asserts, lacks the essential element of relying on the “entrepreneurial or managerial efforts of others” that defines a security. Her letter suggests the regulator is conflating general market speculation with the specific investor protections enshrined in securities law, a move she characterizes as regulatory overreach.
The Nuance of Passive Economic Interest Versus Investment Contracts
To understand this argument, one must distinguish between different types of asset ownership. Guillen’s framework introduces the concept of a “passive economic interest.” This is a critical distinction in the ongoing debate over cryptocurrency securities law. Consider the following comparison:
- Traditional Security (Stock): An investor buys shares in a company. The profit expectation is intrinsically tied to the company’s management building value, issuing dividends, or generating earnings. The investor’s success is directly linked to the efforts of a specific, identifiable group of promoters.
- Commodity (Gold, Wheat): A trader buys a barrel of oil. The profit expectation stems from broad market forces—global supply, geopolitical events, macroeconomic trends. No one expects the oil itself to perform managerial tasks.
- Cryptocurrency (As Argued by Guillen): A person buys a unit of a decentralized cryptocurrency. The value may increase due to network adoption, technological utility, macroeconomic trends favoring digital assets, or simple market sentiment. While developers may improve the protocol, the holder’s profit is not solely or primarily derived from those developers’ managerial efforts in the way a shareholder’s is.
Guillen’s point is that applying securities regulation based purely on the hope of price appreciation would logically subject countless assets—from collectible art to raw land held for speculation—to the SEC’s purview, an outcome never intended by Congress. The legal system has historically treated these as non-securities, and she argues digital assets deserve a similarly nuanced, factor-based analysis.
Ripple’s Precedent and the January 2025 Filing
This is not an isolated argument. Guillen’s submission echoes and amplifies a formal position taken by Ripple Labs Inc. in its ongoing, high-stakes litigation with the SEC. On January 9, 2025, Ripple filed a legal brief arguing that the SEC’s attempt to classify all XRP transactions as securities offerings was fundamentally flawed. A core part of Ripple’s defense was that secondary market sales of XRP—where one person sells to another on an exchange with no connection to Ripple—could not be investment contracts. The buyer’s mere hope of selling at a higher price later, Ripple contended, does not create a security. The company warned that the SEC’s broad interpretation would represent a dramatic and unlawful expansion of its authority. Guillen’s public letter provides independent, expert legal reinforcement for this viewpoint, aiming to influence the SEC’s internal policy discussions as the Ripple case and others proceed through the courts.
Historical Context and the Evolution of the Howey Test
The current clash did not emerge in a vacuum. For over 75 years, the Howey Test has adapted to new financial instruments, from orange groves to limited partnership interests. The SEC’s application of Howey to digital assets began in earnest with its 2017 DAO Report, which concluded that certain token offerings were securities. Since then, a patchwork of enforcement actions and court rulings has created significant uncertainty. Some judges have agreed with the SEC’s broad view, while others, notably in the Ripple case’s ruling on programmatic sales, have pushed back. This legal inconsistency creates a hostile environment for innovation, as businesses cannot know with certainty which regulatory regime applies to their activities. Guillen’s argument advocates for a return to a stricter, more traditional reading of Howey, one that requires a clear contractual undertaking and reliance on a specific promoter’s efforts, not just speculative profit motive in a volatile market.
Implications for the Crypto Industry and Regulatory Clarity
The practical consequences of this legal debate are immense. If Guillen’s argument gains traction within the SEC or is validated by appellate courts, it could lead to a significant narrowing of the SEC’s jurisdictional claims over crypto markets. This could result in:
- Clearer Lines for Exchanges: Trading platforms could operate with more certainty about which assets require special securities licensing and which can be treated as commodities or general digital assets.
- Reduced Legal Risk for Holders: Retail and institutional investors could buy and hold major cryptocurrencies without fear of inadvertently violating securities laws through simple possession.
- Focus on True Securities Offerings: The SEC could concentrate its resources on unambiguous cases of fraudulent initial coin offerings (ICOs) or token projects that function identically to traditional stock offerings, rather than policing secondary market activity.
- Legislative Pressure: A judicial rejection of the SEC’s broad theory could accelerate Congressional efforts to pass tailored digital asset legislation, ending the current era of regulation-by-enforcement.
Conversely, a rejection of this argument would solidify the SEC’s current expansive stance, likely leading to more enforcement actions and potentially driving innovation and capital to jurisdictions with clearer, more tailored rules.
Conclusion
The crucial legal argument presented by Teresa Goody Guillen represents a pivotal moment in the defining debate over cryptocurrency securities law. By rigorously challenging the notion that speculative holding alone constitutes an investment contract, she highlights a potential flaw in the regulatory framework currently being applied to a multi-trillion-dollar asset class. This is not merely an academic exercise; it is a dispute with real-world consequences for market structure, investor access, and America’s role in the digital economy. As the SEC’s task force reviews this and other comments, and as cases like Ripple move toward potential appellate review, the core question remains: Does the century-old framework of securities law flex to encompass all digital asset speculation, or does it require a more precise, purpose-built tool from Congress? The answer will shape the financial landscape for decades to come.
FAQs
Q1: What is the main point of the lawyer’s argument to the SEC?
The main point is that buying and holding a cryptocurrency simply because you hope its price will go up is a passive economic activity, not an investment contract. Therefore, it should not automatically make that cryptocurrency a security subject to strict SEC regulation.
Q2: How does this relate to the Howey Test?
The Howey Test defines an “investment contract.” The lawyer argues that hoping for price appreciation alone does not satisfy the test’s requirement that profits come “from the efforts of others.” Broad market forces, not a specific promoter’s work, often drive crypto price changes.
Q3: Why is Ripple’s case mentioned?
Ripple made a nearly identical argument in its January 2025 court filing against the SEC. The lawyer’s public submission reinforces Ripple’s legal position and aims to influence the SEC’s broader policy thinking, showing this is a coordinated legal strategy.
Q4: What is a “passive economic interest”?
It describes owning an asset primarily for speculative resale, where value is derived from market dynamics (supply, demand, sentiment) rather than the managerial work of a specific promoter. Think of buying gold or art as an investment.
Q5: What happens if the SEC accepts this argument?
It could dramatically limit the SEC’s authority over major cryptocurrencies like Bitcoin and Ethereum in secondary trading, providing clearer rules for exchanges and investors, and potentially shifting regulatory focus to Congress for new legislation.
