Publications

Opening Doors for New Investment Opportunities: A Regulatory Revamp for Digital Assets and 401(k) Plans

Summary: In response to a White House report directing the SEC and CFTC to develop regulations to make the U.S. the “crypto capital of the world,” SEC Chairman Atkins announced “Project Crypto,” a “Commission-wide initiative to modernize the securities rules and regulations.”

• The regulatory push represents a pivot from an enforcement-oriented approach to one that favors clear guidance and bright-line rules for assessing compliance with the federal securities laws. The SEC is empowered to create an accommodating regulatory environment and propose purpose-fit disclosures, exemptions and safe harbors that take “economic realities” into account. The initiative also calls on the SEC to allow non-security crypto assets to trade alongside crypto securities on SEC-regulated platforms.

• Continuing the theme of increasing investor access and fostering innovation, on August 7, the President signed an executive order that directs the SEC to facilitate access to alternative assets (including crypto) for 401(k) Plans by revising guidance by February 3, 2026. We published a client alert explaining the EO here.

Takeaway: Washington is driving a new paradigm for crypto and other alternative assets. SEC rulemaking to facilitate the shift may include: (i) revisions to the accredited investor and qualified purchaser standards, (ii) reassessment of acquired fund fee and expense (AFFE) disclosure, and (iii) reconsideration of the Liquidity Rule.

Best Practice Tip: Expect further announcements related to the implementation of Project Crypto and the President’s 401(k) EO, additional interim guidance and relief from the SEC Staff, and likely an influx of notice and comment rulemaking over the next several months. In the interim, the SEC Crypto Task Force and rulemaking divisions are open for business on constructive and good faith questions of interpretation in crypto-related matters. In our experience, it is generally a better approach to engage openly on edge cases with a currently accommodating SEC given how political and regulatory winds can shift over time.

“Back to Basics” (Sort Of): The Continuation of RIA Enforcement Cases

Summary: On August 15, the SEC announced a settlement with private fund adviser TZP Management Associates for management fee offset practices inconsistent with governing documents. The SEC alleged that TZP’s actions resulted in charges to its funds of over $500,000 in excess management fees. TZP agreed to pay a civil money penalty of $175,000, as well as disgorgement and prejudgment interest, through a Fair Fund. We published a client alert explaining the settlement here. Additionally, on August 29, the SEC quietly posted settlements with two retail investment advisers based on the firms’ alleged failures to adequately disclose conflicts of interest when advising clients and prospective clients to enroll in managed account programs (links to the settlements here and here). The firms paid $19.5 million and $5.25 million (comprising disgorgement, interest, and a civil money penalty), respectively.

Takeaway: While TZP, the conflicts settlements, and other recent settlements with investment advisers (e.g., Munakata Associates LLC (violations of the Custody Rule) and Sourcerock Group, LLC (violations of the Trading Rule)) all may have been cases opened under the Gensler SEC, they show that this SEC will still bring cases involving more traditional issues like conflicts, management fees and expenses, including when alleged conduct exclusively affects sophisticated investors (TZP) and does not involve intentional misconduct (the conflicts settlements) or client harm. Advisers should continue to wait and watch for cases that may become the Atkins Commission’s “signature”—likely to come in the SEC’s FY 26. 

Best Practice Tip: The rules are still the rules and advisers should continue to refine and implement robust compliance programs and testing, especially with respect to perennial private fund enforcement priorities like conflicts, management fees and expenses.

Judge Margaret Ryan, Director of the Division of Enforcement

Summary: The SEC’s long-awaited announcement of a new Enforcement Director ended with the surprise pick of Judge Margaret “Meg” Ryan, a senior judge of the U.S. Court of Appeals for the Armed Forces. Judge Ryan began her legal career as a judge advocate in the U.S. Marine Corps and later clerked for a 4th Circuit judge and for Supreme Court Justice Clarence Thomas. Before becoming a judge, she was also a partner at two law firms. In the SEC’s press release, Judge Ryan emphasized that she will work to “ensure that the Division is true to the SEC’s mission in taking action on behalf of investors harmed by those who break the securities laws and providing an effective deterrent against fraudulent and manipulative activities in our financial markets.” 

Takeaway: Time will tell how Judge Ryan’s tenure as Enforcement Director will pan out, but, as is typical, her approach and priorities are likely to closely align with the Chairman. The appointment of a Director with no apparent significant experience with the securities laws is surprising at first glance but may be intended to underscore the Administration’s commitment to throwing out the old playbook and returning to the SEC’s core mission. In particular, the selection of a judge and not a former prosecutor or SEC Enforcement staff veteran is a message in itself and may be a harbinger of a more rigorous assessment of the evidentiary strength of cases, making end of case advocacy more promising for parties seeking to persuade the Staff to walk away.

Best Practice Tip: While we expect that there will be an inevitable “ramp up period,” stay tuned for policy statements and speeches by Judge Ryan as she assumes her post at the beginning of September. Going forward, parties should be careful to draft written advocacy submitted to the Staff, especially Wells submissions, white papers, and other Director-level correspondence, as if their audience is a judge, which it will soon be.

Second Circuit Reverses Insider Trading Conviction

Summary: In U.S. v. Chastain, the Second Circuit reversed an insider trading conviction tried under the wire fraud statute because the government had not shown that the allegedly misappropriated confidential business information had commercial value to the company. The case involved nonfungible tokens (“NFTs”), which the government had not alleged were securities; thus, the case was tried under the wire fraud statute and not the securities laws. The defendant, an employee of NFT marketplace OpenSea, was alleged to have purchased NFTs that he knew would be shortly posted to a section of OpenSea’s website dedicated to highlighting specific NFTs. Posting of a particular NFT on the website could increase the NFT’s value. The defendant allegedly sold the NFTs for a profit after they were posted. Relying on Supreme Court precedent, the Second Circuit held that the wire fraud statute “reaches only traditional property interests” and thus confidential business information would not be property under the statute “unless it has commercial value to the company that holds it.”

Takeaway: While the Chastain case sounded in wire fraud and not the securities laws, the Second Circuit’s holding may provide an opening for defendants in other insider trading cases alleging the misappropriation theory to argue that misappropriated confidential business information must have commercial value to the company—regardless of any duty the defendant had to keep the information confidential.

Best Practice Tip: Importantly, the Chastain decision does not disturb existing case law on insider trading under the securities laws, and thus should not impact existing compliance policies surrounding insider trading. Advisers should continue to train on core insider trading concepts and, notwithstanding Chastain, underscore to employees that trading on information that appears to be confidential to another party should always give pause.