Amicus Brief: SEC v. Payward, 3:23-cv-06003 (N.D Cal. Apr. 16, 2024)

Abstract

For nearly a century, the Securities and Exchange Commission (SEC) has regulated the national securities markets. Since its inception, it has carried out its mission to protect investors, preserve fair and orderly markets, and facilitate capital formation with respect to both run-of-the-mill securities instruments and novel ones. From its early days of enforcing the Securities Act’s requirements to units of a citrus grove development, SEC v. W.J. Howey Co., 328 U.S. 293 (1946), to portfolios of rare coins, SEC v. Brigadoon Scotch Distribs., Ltd., 388 F. Supp. 1288 (S.D.N.Y. 1975), to the modern specter of crypto assets, the “flexible” and “adapt[able]” nature of the securities laws enables the SEC to respond to industry innovations and trends, Howey, 328 U.S. at 299.

This enforcement action against defendants is the latest such application of the SEC’s authority to regulate “investment contracts” to new factual circumstances. 15 U.S.C. §78c(a)(1). The relative novelty of the investment asset does not make the SEC’s invocation of its longstanding authority to regulate investment contracts “unheralded” or “transformative,” West Virginia v. EPA, 142 S. Ct. 2587, 2610 (2022), to trigger the major questions doctrine; on the contrary, the SEC has been exercising this authority against the latest investment crazes for decades. Nor does shifting the focus of its enforcement efforts to a new type of investment asset implicate the kind of economic or political significance of concern to the Supreme Court in recent major questions doctrine cases. This is simply a continuation of the SEC’s gradual process of finding the limits of the securities laws through incremental enforcement actions—a process it has applied to address potential new securities since the agency’s creation in 1934.

Keywords: administrative law, enforcement actions, major questions doctrine, crypto