SEC Crypto Enforcement: From the Howey Test to Ripple, Coinbase, and the 2025 Reversal

The SEC filed more crypto enforcement actions between 2020 and 2024 than in all prior years combined. A new chair has reversed course on several of them. Understanding what was alleged, what courts decided, and what changed tells you more about US crypto regulation than any single bill.

The Howey Test and why it matters for crypto

The legal foundation of most SEC crypto enforcement is a 1946 Supreme Court case: SEC v. W.J. Howey Co. The Howey test defines an investment contract — a type of security — as a transaction in which a person invests money in a common enterprise and reasonably expects profits primarily from the efforts of others. The SEC’s position since at least 2017 has been that most crypto tokens satisfy this test and are therefore unregistered securities when offered or sold without SEC registration.

The industry’s counter-argument is that sufficiently decentralised networks, where investors cannot reasonably expect to profit primarily from a promoter’s efforts, do not produce securities. The debate plays out differently for different assets. Bitcoin and, after prolonged dispute, ether are widely accepted not to be securities. For other tokens, the analysis depends on facts that vary by project and by sale type.

Our ICO glossary entry explains the initial coin offering mechanism that was at the centre of the earliest enforcement cases. For the broader regulatory context, see our regulation coverage and our companion piece on US crypto legislation.

Ripple Labs and the XRP decision

The SEC sued Ripple Labs in December 2020, alleging that XRP was an unregistered security and that Ripple had raised over $1.3 billion through unregistered offers. The case became the most closely watched in crypto legal history. In July 2023, Judge Analisa Torres of the Southern District of New York delivered a split ruling: XRP sold directly to institutional buyers in “programmatic sales” was a security, but XRP sold on secondary markets (exchanges) to retail buyers was not, because retail buyers had no reasonable expectation that they were investing in Ripple’s efforts.

The ruling was immediately controversial. The SEC appealed the secondary-market finding. Ripple filed its own cross-appeal. The case remained in appellate proceedings into 2025, and neither the Second Circuit decision nor a Supreme Court review had been resolved at the time of writing. The Ripple decision did not establish binding precedent for other tokens, but it significantly weakened the SEC’s broadest theory of exchange-traded token liability.

The live XRP price and market data are on our XRP price page. The primary court documents are available at CourtListener — SEC v. Ripple.

The Coinbase and Binance cases

In June 2023, the SEC filed suits against the two largest US-accessible crypto exchanges. Against Coinbase, the SEC alleged that the exchange was operating as an unregistered national securities exchange, broker, and clearing agency, and that 13 tokens listed on Coinbase were unregistered securities. Against Binance, the SEC filed 13 charges including operating an unlicensed exchange in the US, commingling customer funds, and directing customers to an affiliated market maker that the SEC alleged was manipulating prices.

The Binance case included a parallel action from the Department of Justice that resulted in Binance and its founder Changpeng Zhao (CZ) pleading guilty to money-laundering violations. CZ paid a $50 million fine and stepped down as CEO; Binance paid $4.3 billion in fines and settlements across DOJ, FinCEN and OFAC. The civil SEC case remained ongoing.

The Coinbase case saw procedurally significant developments. Coinbase sought interlocutory review of the district court’s refusal to dismiss, arguing a threshold question of law needed resolving before discovery. The Second Circuit agreed to take up the question. The new SEC leadership under Atkins agreed in early 2025 to drop the action, citing changed enforcement priorities, before the appellate decision was issued. Coinbase’s legal arguments were never fully ruled on by a court in that case.

What changed under the new SEC leadership

Gary Gensler resigned as SEC chair on 20 January 2025. His successor, Paul Atkins, had served as an SEC commissioner from 2002 to 2008 and had since been known for supporting lighter-touch financial regulation. The change in leadership produced an immediate shift in enforcement posture. The SEC dropped its suit against Coinbase. It also settled with several other crypto firms on terms more favourable than originally sought, and announced a new crypto task force led by Commissioner Hester Peirce — long known in the industry as “Crypto Mom” for her consistent dissents from Gensler-era enforcement actions.

The shift does not mean deregulation in a formal sense. The securities laws have not changed. Tokens that are securities remain securities regardless of SEC enforcement posture. But the enforcement risk for companies operating in regulatory grey areas has shifted significantly, and the probability of a negotiated compliance pathway — rather than a lawsuit — has increased. Whether this posture shift translates into the formal rulemaking or legislative clarity that the industry has sought is a separate and unresolved question.

Our exchanges section tracks the regulatory status of individual platforms. For the current status of SEC rulemaking proposals, the SEC’s official no-action and guidance page is the primary source.

The limits of enforcement as regulation

A recurring criticism from legal scholars and industry participants is that enforcement without clear rules creates a compliance trap. Companies cannot easily determine in advance whether their product is a security; they can only wait to see whether the SEC files a case. The cost is borne disproportionately by smaller companies that cannot afford years of litigation, and by users who lose access to products when companies exit the US market to avoid enforcement risk.

Advocates of the Gensler approach argued that crypto firms were knowingly taking risks they understood, and that the Howey test provided adequate notice. The debate will likely continue regardless of enforcement posture, because it reflects a genuine underlying disagreement about how fast regulatory frameworks should adapt to new technology.

The most useful empirical measure of the enforcement regime’s effect is activity data: whether crypto companies are incorporating in the US, listing on US exchanges, and serving US customers. That data is tracked by industry groups and has shifted in different directions at different times as the regulatory climate has changed.

Frequently asked questions

What is the Howey Test?

The Howey Test is the legal standard from a 1946 Supreme Court case used to determine whether something is a security. It asks whether there is an investment of money in a common enterprise with a reasonable expectation of profit from the efforts of others. The SEC applies it to crypto assets to decide whether they are unregistered securities.

Did the XRP ruling mean all exchange-traded tokens are not securities?

No. The July 2023 Ripple ruling said XRP sold on secondary markets to retail buyers without the expectation of profiting from Ripple’s efforts did not satisfy the Howey Test in that context. It did not create a general rule. The SEC appealed, and the ruling applies only to the specific facts of that case.

What happened to the SEC’s case against Coinbase?

The SEC dropped its civil lawsuit against Coinbase in early 2025 following the change in SEC leadership. The underlying legal questions — whether Coinbase operated as an unregistered exchange and whether listed tokens were securities — were not resolved by a court in that action.

Is ether a security?

The SEC under Gensler had suggested ether might be a security after Ethereum’s 2022 shift to proof of stake, but never formally filed an action to that effect. The new SEC leadership has not pursued an ether-as-security theory. No court has ruled definitively on the question. Current market and regulatory consensus treats ether as a commodity for most purposes.

Sources

• CourtListener — SEC v. Ripple Labs docket
• SEC — Crypto Enforcement Actions Archive
• Congress.gov — FIT21 (for legislative context)