Regulation Crypto Assets Will Not Eliminate Regulatory Enforcement or Securities Class Action Risk

September 24, 2026

By Kenneth P. Herzinger and Derek Evan Wetmore

There is a misperception in the crypto industry. Regulation Crypto Assets promises to reduce or eliminate the risk of claims for violating the registration provisions of the federal and state securities registration laws. But crypto asset and token issuers and their directors, officers and employees remain subject to the antifraud and antimanipulation provisions of the federal and state securities laws. The Securities and Exchange Commission (SEC) is not giving up jurisdiction over crypto assets and tokens. And the Department of Justice (DOJ), state securities regulators and private securities plaintiffs can — and will — still pursue claims against them.

Key Takeaways

SEC Jurisdiction

The SEC will retain jurisdiction over crypto assets. As the regulations make clear, “[i]ssuers that rely on [Regulation Crypto Assets] exemptions would remain subject to the antifraud and antimanipulation provisions of the federal securities laws.” The SEC’s Division of Enforcement will still charge companies, broker-dealers, investment advisers, funds and individuals that solicit, offer or sell crypto assets for disclosure violations, insider trading, market manipulation, sham offering schemes and other types of securities fraud under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, Section 17(a) of the Securities Act of 1933, and the other antifraud and antimanipulation provisions. In this important way, Regulation Crypto Assets differs from the Investment Contract Safe Harbor, which does not contain the same explicit disclaimer and states that if the conditions of the safe harbor are satisfied, then a covered investment contract would be deemed by the commission to have ceased to exist, meaning the crypto asset would no longer be deemed a “security” and the SEC would arguably lose jurisdiction.

Misstatements and Omissions Risk

Section 10(b) and Rule 10b-5 thereunder prohibit any material misrepresentation or omission of fact in connection with the purchase or sale of a security. Section 17(a) similarly prohibits fraud and misrepresentation in the offer and sale of securities. While the statutory provisions differ in terms of the scienter required — 10(b) requires proof that the defendant acted “knowingly or recklessly,” while negligence suffices under certain provisions of 17(a) — both prohibit issuers from making material misrepresentations or omissions in their public statements. The Supreme Court established a private right of action under Section 10(b) and Rule 10b-5, but private litigants cannot bring a claim under Section 17(a) or the rules thereunder.

For purposes of 10(b), 10b-5 and 17(a) liability, “pure omissions are not actionable[.]” Macquarie Infrastructure Corp. v. Moab Partners, L.P., 601 U.S. 257, 260 (2024). “A pure omission occurs when a speaker says nothing, in circumstances that do not give any particular meaning to that silence.” Id. at 263. Half-truths, on the other hand, are actionable. Id. (“Half-truths … are representations that state the truth only so far as it goes, while omitting critical qualifying information.”)

Misstatement and omission liability could potentially attach both to statements in (or omitted from) the formal disclosures required by the proposed regulation and in other public statements made by crypto asset issuers and their employees on their websites, in social media posts, at public conferences and in any other form of public statement.

Statements that are identified as a forward-looking statement and are accompanied by meaningful cautionary language identifying important factors that could cause actual results to differ materially from those in the forward-looking statement are subject to protection under the federal securities laws.

Market Manipulation Risk

Section 10(b) prohibits not only material misrepresentations and omissions, but also manipulative acts. 15 U.S.C. § 78j(b); Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 177 (1994). Market manipulation refers to deliberate attempts to interfere with the market, usually as a way to reap profits by deceiving investors. It typically occurs when an individual attempts to control or artificially affect the price of a security, either by driving a stock’s price up or down. Common types of market manipulation include “pump and dump” schemes (where owners of a security spread false information so that the price of the security will go up, and then subsequently sell their shares at a significant profit), “wash trading” (involving the simultaneous selling and repurchase of the same security for the purpose of generating activity to increase the price) and “painting the tape” (placing successive orders in small amounts at increasing or decreasing prices). Federal prosecutors and the SEC have brought charges against crypto market-makers and related individuals for allegedly orchestrating wash‑trading and pump‑and‑dump schemes that artificially inflated token prices and volumes as part of Operation Token Mirrors, the DOJ’s undercover investigation into cryptocurrency market manipulation.

Accounting and Financial Statement Fraud Risk

In recent years, the SEC has renewed its focus on accounting and financial statement fraud. Just last month, the SEC announced the creation of a Financial Reporting and Accounting Unit tasked with providing the dedicated expertise, focus and capacity to pursue accounting and financial reporting fraud cases. This is an important development for crypto issuers that wish to use the proposed rule because issuers relying on the exemption would be required to publicly file financial statements (which, for Tier 2 offerings, would be required to be audited).

SEC and DOJ Insider Trading Risk

Insider trading refers to trading in securities while in possession of material nonpublic information. Under the “classical” theory of insider trading, a person who buys or sells securities on the basis of material nonpublic information violates Rule 10b-5 if she: (1) owes a fiduciary duty to the company; (2) is an insider; or (3) is a tippee who received the information from an insider and knows, or should know, that the insider breached a fiduciary duty in disclosing the information to her. Chiarella v. United States, 445 U.S. 222 (1980). The “misappropriation” theory applies to situations in which a person, who is not an insider, lawfully comes into possession of material nonpublic information, but nevertheless breaches a duty of trust or confidence owed to the source of the information or by tipping the information to another person to trade. Dirks v. SEC, 463 U.S. 646, 647 (1983). One new type of insider trading under the misappropriation theory is “shadow trading.” Shadow trading is when an employee uses confidential information they learned during their employment to trade in a company other than their employer (such as a competitor), thereby breaching their fiduciary duty to their employer.

Both the SEC and DOJ have brought charges for insider trading in crypto assets. For example, a former crypto exchange employee was sentenced to two years in prison for providing confidential information about crypto asset listings to a relative and friend so that they could place profitable trades. The SEC brought a parallel action against the crypto exchange employee and the individuals who traded based on the inside information he allegedly tipped. The SEC and DOJ remain hyper-focused on insider trading, including in crypto asset securities, as evidenced by the DOJ insider trading charges filed recently.

DOJ Risk

The DOJ can bring criminal securities fraud and conspiracy to commit securities fraud charges against companies and individuals who willfully engage in a scheme or artifice to defraud or obtain money or property by false or fraudulent representations or promises in connection with the purchase or sale of a security. 15 U.S.C. § 78ff (Securities Fraud); 18 U.S.C. § 371 (Conspiracy to Commit Securities Fraud). This would include crypto assets exempted from registration under Regulation Crypto Assets. DOJ can also charge crypto issuers and their directors and officers for wire fraud and mail fraud in connection with the purchase or sale of crypto assets, regardless of whether the crypto assets are securities. 18 U.S.C. § 1343 (Wire Fraud); 18 U.S.C. § 1341 (Mail Fraud).

State Regulatory Risk

While the proposed rule provides for preemption of state registration requirements, states would retain jurisdiction to bring antifraud enforcement actions. This is noteworthy in light of the uptick in state regulatory investigations and enforcement actions.

Securities Class Action Risk

The regulation will likely also lead to an increase in securities class actions against crypto asset issuers and their directors and officers for allegedly making material misstatements and omissions or engaging in accounting fraud. That is because crypto asset issuers will be required to publicly file offering materials to meet the exemption, including a discussion of the issuer’s financial condition and financial statements, and comply with ongoing reporting requirements like publicly traded companies.

Potential Claims Have a Long Tail

The statute of limitations is up to 10 years for securities fraud claims by the SEC, five years for negligence claims by the SEC and five years for securities class action fraud claims by crypto token purchasers.

What Crypto Asset Issuers Should Do Now

Crypto asset issuers must be vigilant and scrutinize the accuracy of their Regulation Crypto Assets SEC filings and financial statements and all public statements just like public companies.
Crypto asset issuers should take advantage of these provisions by providing meaningful cautionary language in connection with forward-looking statements such as financial projections and predictions.
Crypto asset issuers should consider adopting similar governance structures (e.g., audit committees, risk committees and disclosure committees) and internal controls (e.g., internal controls over financial reporting, disclosure controls and procedures, insider trading policies, trading blackouts and training) used by public companies.
Crypto asset issuers should consider purchasing D&O insurance and providing indemnification agreements to their directors and officers, as is standard with public companies.