The paradox in Judge Torres’s ruling is that the protections of the securities laws accrue to sophisticated investors who purchase digital assets directly from an issuer or affiliate—but not to retail investors who purchase in anonymous secondary markets.
While backward from a policy perspective, this result flows from the SEC’s need to rely on the proposition that digital assets are “investment contracts.” There is logic in concluding that a purchaser who knows they’re in privity with the issuer is entering an investment “contract,” while a secondary-market trader is not.
As this implication of Judge Torres’s decision becomes clearer, Congress and other policymakers may come to be persuaded that our 1930s-era securities and commodities laws are due for an update.
Source: When Howey met Gary (Gensler): Ripple or tsunami? | Davis Polk
