What Jurisdiction Is the SEC Claiming in the Crypto Area?

Questions regarding the limits of the SEC’s jurisdiction in the crypto asset area have blossomed again since its decision to in the Kraken case early this year. There, the agency at least suggest that it was revising its approach to crypto assets if not outright exiting the area. Earlier this week the agency stepped into the crypto area again in its decision in ClS Global. But now the agency has settled one count of an action in which investment contracts were being sold while dismissing with prejudice others claims that appeared to involve crypto assets. SEC v. Nova Labs, Inc., Civil Action No. 1:25-00539 (S.D.N.Y.).

Nova Labs is a case filed this week that centers on the sale of investment contracts “involving electronic devices and a rewards program that generates returns in the form of three Nova Labs crypto assets . . .” False statements were claimed to have been made in connection with the sales.

Since early 2019 Defendant Nova Labs has raised about a one half a million dollars through the sale of “electronic devices that ‘mine’ one of three Nova Lab crypto assets, according to the Commission’s complaint. Those sales are alleged by the Commission to violate the federal securities laws. As the complaint states: “Nova Labs offered and sold Hotspots (the name of the assets) . . . as investment contracts and, thus, securities.” Marketing for the assets appeared to center on claims regarding three large entities Defendant claims were using the assets. Those claims were false, according to the complaint.

The Commission settled one count of the count of the complaint recently involving the sale of the mined assets. As part of the settlement Defendant consented to the entry of a final judgment based on Sections 17(a)(2) of the Securities Act. In addition, the company agreed to pay a penalty of $200,000. Other counts of the complaint were dismissed.

If the SEC is not claiming to have jurisdiction over crypto, or abdicating the area, its participation in this case is at best questionable. If the agency is only asserting “selective” jurisdiction, the question is on what basis and by what authority is it asserting jurisdiction in that manner? It is time that the SEC clarifies its position.