Former SEC Enforcement Official and Duke Scholar Urge Crypto Rule Withdrawal

John Reed Stark, a former SEC enforcement official, and Duke University finance scholar Lee Reiners urged the SEC to withdraw its proposed crypto rules over investor protection concerns.

In their Oct. 16 comment, Stark and Reiners argued that the proposal exceeds the SEC’s authority and would weaken safeguards for investors. They said existing securities law, including the Supreme Court’s Howey test, already provides a framework for crypto offerings.

Their objection targets Regulation Crypto Assets, which would let eligible startups raise up to $5 million over four years and qualifying projects raise up to $75 million in any 12-month period. The exemptions would carry disclosure requirements, and federal antifraud rules would still apply.

The proposal also sets conditions for when a crypto asset ceases to be subject to an associated investment contract. Stark and Reiners argued that the process would give issuers too much control over when their tokens leave securities oversight. They warned that a final rule close to the proposed version could face an immediate legal challenge.

Other commenters want the SEC to revise the plan. Bitwise Asset Management, Inc. asked for a standard based on public information in an Oct. 19 comment so investment managers can assess when a token is no longer tied to an investment contract. Bitwise also wants the SEC to explain when managers may rely on an issuer’s proposed Form TR filing and how to assess a token if no filing exists.

The Hyperliquid Policy Center, which supports the framework, wants the proposed safe harbor to apply earlier in a project’s development. It also seeks clearer protections for airdrops that reward people for participating in a network, along with guidance on token buybacks.

The center’s requests on airdrops and later trading also address the registration status of people who facilitate secondary token transactions and whether tokens may trade through onchain protocols.

The comment period closed Oct. 20. The SEC has announced no timetable for deciding whether to revise, adopt or withdraw the proposal. Adoption of a final rule would require a commission vote.