In an interview with The Texas Lawbook, Stephen Hammer, a Dallas associate, discussed his first U.S. Supreme Court oral argument in Riley v. Bondi. Appointed by the Court to defend a Fourth Circuit ruling that neither party supported, he shared how his legal and military experiences shaped his approach to the case.
Read the full interview in The Texas Lawbook [PDF].
Proposals would untether California single-firm conduct standards from federal antitrust law.
As summarized in our January 15, 2025 Client Alert, the California Law Revision Commission (CLRC) has been considering changes to California’s antitrust law.[1] Earlier this year, the CLRC directed its staff to prepare specific proposals on, among other things, changes to California law to address unilateral (single-firm) anticompetitive conduct—which has historically been outside the ambit of the California Cartwright Act.[2] Yesterday, the CLRC staff proposed three options for a potential single-firm conduct provision.
The staff recommendations will now be considered by the CLRC’s commissioners, and a period of public comment is open in advance of the CLRC’s June 26, 2025 meeting at which the CLRC may select one of these three proposals to recommend for legislative adoption.[3] Gibson Dunn attorneys are monitoring these recommendations and are available to discuss the implications for your business or assist in preparing a public comment for submission to the CLRC.
Proposed Single-Firm Conduct Language
The CLRC is considering recommending a state antitrust law to reach anticompetitive acts by a single company. At the federal level, Section 2 of the Sherman Act prohibits anticompetitive monopolization and attempts to monopolize. But the CLRC is considering options that would be broader than Section 2 in a number of ways, and the staff’s recommendations seek to explicitly “untether” state competition law from federal antitrust law.[4] Indeed, in yesterday’s memo, the CLRC staff proposed that, in addition to specific language prohibiting unilateral anticompetitive conduct, for which the staff provided three options, the CLRC also consider statements of purpose which would clarify that California law is broader than federal law and would reject particular limiting principles in federal law.
As the first option, the CLRC staff recommended adding a “basic” single-firm conduct provision to the Cartwright Act that would read: “It is unlawful for a person to monopolize or monopsonize, to attempt to monopolize or monopsonize, to maintain a monopoly or monopsony, or to combine or conspire with another person to monopolize or monopsonize, in any part of trade or commerce.”[5] This option is the closest analogue to Section 2 of the Sherman Act. As a result, this proposal is the most likely to be interpreted in line with federal law. While that would minimize confusion, uncertainty, and room for novel theories of liability or inconsistent interpretations of state and federal law, the CLRC staff views this as a “significant drawback[]” based on their view that federal law is too restrictive on enforcers and plaintiffs.[6] Moreover, this proposal does differ from federal law in certain ways, including an explicit prohibitions on monopsonization to “help address” an asserted “historical underenforcement of buyer-side monopolies that impact labor, among others.”[7]
As the second option, the CLRC staff proposes an “enhanced” provision that, in addition to the above, would include an explicit prohibition on “act[ing], caus[ing], tak[ing] or direct[ing] measures, actions, or events . . . [i]n restraint of trade, or to attempt to restrain the free exercise of competition or the freedom of trade or production.”[8] This would establish a new “restraint of trade” violation for single firm actors, untethered to the acquisition or maintenance of monopoly power (as required by Section 2 of the Sherman Act), that would capture a “broad range of anticompetitive conduct that may not fall within the currently restricted scope of federal law.”[9]
As the third option, the CLRC staff propose “a clean break from existing federal [single-firm conduct] law”[10] with a prohibition on “anticompetitive exclusionary conduct,” defined as conduct that tends to “[d]iminish or create a meaningful risk of diminishing the competitive constraints imposed by the defendant’s rivals and thereby increase or create a meaningful risk of increasing the defendant’s market power” and “[d]oes not provide sufficient benefits to prevent the defendant’s trading partners from being harmed by that increased market power.”[11] This proposal would define trading partners as customers and suppliers, although the CLRC staff suggests clarifying the term to cover workers and other competitors.[12]
Finally, CLRC staff also suggest including statements of purpose as part of any recommended legislation to guide the law’s interpretation and “untether that law from federal law and certain narrow precedents.”[13] The staff proposed a number of sample purpose provisions, including statements that California antitrust law is intended to include protection for workers,[14] that California “favors the risk of over-enforcement of antitrust laws over the risk of under-enforcement,”[15] and that California antitrust law is broader than and not modeled on federal law.[16] The latter could involve language explicitly rejecting certain federal precedents, including ones allowing a company to refuse to deal with competitors,[17] raising the requirements for predatory pricing claims,[18] requiring that plaintiffs define and prove a relevant market,[19] requiring that rivals must be as efficient as the defendant,[20] and requiring a certain threshold of market share or market power before imposing liability for single firm conduct.[21]
Takeaways
The CLRC staff’s proposals—in particular, the second and third options—represent significant departures from existing law. Each would impose liability on conduct that has remained outside the ambit of California antitrust law for over a century. They also create the potential for proscribing conduct that was previously lawful under both federal and state law, expanding potential liability, encouraging investigations by the California Attorney General as well as private litigation—including class actions—in California courts, and creating uncertainty and compliance challenges for businesses, particularly those operating in multiple states.
The second and third options, which go beyond prohibiting monopolization (or monopsonization) to prohibiting unilateral “restraints of trade” or actions that risk increasing a firm’s market power, do so without requiring a threshold showing of monopoly or near-monopoly power. Indeed, some of the CLRC staff’s proposed findings and declarations explicitly reject the idea that liability requires a finding that a single firm has or may achieved market share at or above any particular threshold.[22] This would be a vast expansion of antitrust law that not only could put California’s antitrust regime in opposition to federal law but also would “threaten to discourage the competitive enthusiasm that the antitrust laws seek to promote.”[23] This also risks creating divergent interpretations of when single firm conduct violates the law and potentially subject any business – including those operating in otherwise competitive industries – to scrutiny for actions that are permissible under federal law.[24]
The third option represents the most significant departure from existing law. It appears to be centered around harm to competitors, as opposed to consumer welfare. This could incentivize litigation by disappointed rivals in cases where consumers are not harmed by, or even benefit from, a firm’s conduct.[25] Because it creates an entirely new standard, it would be particularly challenging for companies seeking to adopt compliant business practices and policies. To that end, the staff even notes that this third option “leaves some doubt as to the burdens of proof and the extent to which there is to be some application of the traditional rule of reason analytical framework” that has long been used under federal law.[26] The staff also noted the potential “difficulty,” under this standard, in “distinguishing between anticompetitive conduct, which is illegal, from competition on the merits, which is legal.”[27] For these reasons, the CLRC staff recognized that this proposal should be regarded as a “work in progress.”[28]
The CLRC must review the staff’s recommendations and subject their own recommendations to a period of public comment prior to submitting them to the legislature. Because the CLRC’s final recommendations historically have been adopted into law at a high rate,[29] companies and industry associations should think carefully about how the staff’s proposals may affect their businesses and whether to provide comments for the CLRC before the June 26, 2025 meeting at which the commissioners plan to discuss these options. Attorneys from Gibson Dunn are available to help in preparing a public comment for submission to the CLRC or to the legislature as they consider potential bills, to discuss how these proposed changes may apply to your business, or to address any other questions you may have regarding the issues discussed in this update.
[1] See Gibson Dunn, Staff of California Law Revision Commission Proposes Changes to California Antitrust Laws (Jan. 15, 2025), https://www.gibsondunn.com/staff-of-california-law-revision-commission-proposes-changes-to-california-antitrust-laws/.
[2] Minutes, Cal. L. Revision Comm’n (Jan. 23, 2025) at 4, https://www.clrc.ca.gov/pub/2025/MM25-12.pdf; Alex Wilts, California Law Revision Commission Advances Antitrust Law Study (Jan. 24, 2025), here.
[3] Memorandum, Draft Language for Single Firm Conduct Provision, Cal. L. Revision Comm’n (Mar. 24, 2025) at 1 [henceforth “SFC Options”], https://www.clrc.ca.gov/pub/2025/MM25-21.pdf.
[4] Memorandum, Initial Recommendations for ACR 95 Questions, Cal. L. Revision Comm’n (Jan. 13, 2025) at 5 [henceforth “Initial Staff Memo”].
[5] SFC Options at 2.
[6] Id. at 2-3.
[7] Id. at 2 & n.7.
[8] Id. at 4.
[9] Id. at 4.
[10] SFC Options at 5.
[11] Id. at 5.
[12] Id. at 6-7 & nn.28, 30.
[13] Id. at 3, 5, 8-14.
[14] Id. at 10.
[15] SFC Options at 11.
[16] Id. at 12.
[17] Id. at 12-13 & n.57.
[18] Id. at 12-14 & n.56.
[19] Id. at 12 & n.58.
[20] SFC Options at 13-14.
[21] Id. at 13-14 & n.61.
[22] Id. at 13-14.
[23] Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 775 (“Subjecting a single firm’s every action to judicial scrutiny for reasonableness would threaten to discourage the competitive enthusiasm that the antitrust laws seek to promote.”).
[24] CLRC staff recognized as much: “generating a unique set of standards that totally rejects federal law presents a formidable drafting challenge . . . [and] could be risky and invite uncertainty, which could chill innovation and business growth.” Initial Staff Memo at 7.
[25] SFC Options at 6, 8.
[26] Id. at 6-7.
[27] Id. at 7 & n.24; see also Memorandum, Single-Firm Conduct Working Group, Cal. L. Revision Comm’n (Jan. 25, 2024) at 15, https://www.clrc.ca.gov/pub/Misc-Report/ExRpt-B750-Grp1.pdf.
[28] SFC Options at 8.
[29] Cal. L. Revision Comm’n, https://clrc.ca.gov/ (last visited Jan. 15, 2025).
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s Antitrust and Competition, Mergers and Acquisitions, or Private Equity practice groups in California:
Antitrust and Competition:
Rachel S. Brass – San Francisco (+1 415.393.8293, rbrass@gibsondunn.com)
Christopher P. Dusseault – Los Angeles (+1 213.229.7855, cdusseault@gibsondunn.com)
Caeli A. Higney – San Francisco (+1 415.393.8248, chigney@gibsondunn.com)
Julian W. Kleinbrodt – San Francisco (+1 415.393.8382, jkleinbrodt@gibsondunn.com)
Samuel G. Liversidge – Los Angeles (+1 213.229.7420, sliversidge@gibsondunn.com)
Daniel G. Swanson – Los Angeles (+1 213.229.7430, dswanson@gibsondunn.com)
Jay P. Srinivasan – Los Angeles (+1 213.229.7296, jsrinivasan@gibsondunn.com)
Chris Whittaker – Orange County (+1 949.451.4337, cwhittaker@gibsondunn.com)
Mergers and Acquisitions:
Candice Choh – Century City (+1 310.552.8658, cchoh@gibsondunn.com)
Matthew B. Dubeck – Los Angeles (+1 213.229.7622, mdubeck@gibsondunn.com)
Abtin Jalali – San Francisco (+1 415.393.8307, ajalali@gibsondunn.com)
Ari Lanin – Century City (+1 310.552.8581, alanin@gibsondunn.com)
Stewart L. McDowell – San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)
Ryan A. Murr – San Francisco (+1 415.393.8373, rmurr@gibsondunn.com)
© 2025 Gibson, Dunn & Crutcher LLP. All rights reserved. For contact and other information, please visit us at www.gibsondunn.com.
Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.
Trey Cox was featured in D CEO Magazine, reflecting on his personal life, career milestones, and how him and his wife have stood the test of time.
Read the full article on D CEO.
Theane Evangelis was featured on CNN, PBS NewsHour, and ABC News regarding her representation of the City of Grants Pass in the Supreme Court case City of Grants Pass v. Johnson.
James Keshavarz and Charline Yim were featured in the American Bar Association Journal discussing mental health and highlighting strategies that can be used to combat the stigma of mental health.
Read the full article on ABA Journal.
In 9fin’s “Jane’s LME Addiction” podcast, Scott Greenberg discusses the evolution of cooperation agreements within liability management exercises. Scott weighs in on the different types of co-ops, why co-ops have become expected in US deals, their spread to the EU, and the validity of antitrust arguments.
Watch the interview on 9fin.
The Daily Journal reported on a civil rights lawsuit filed by Gibson Dunn, led by partner Lauren Blas on behalf of Microsoft employee Keith Puckett. The suit alleges that El Segundo police unlawfully detained Puckett twice and engaged in racial profiling, citing state-collected data.
Read the full article in the Daily Journal [PDF].
BioWorld reported on a Gibson Dunn report detailing a record $1 billion in False Claims Act settlements for the first half of 2024, with a focus on the growing enforcement of federal cybersecurity requirements. Michael Dziuban, one of the authors of the report, discusses the increasing risks for device makers, the Department of Justice’s cyber-fraud initiative, and legal theories being tested in the cybersecurity space.
Read the full article on BioWorld (subscription required).
Kevin Bettsteller spoke with Private Funds CFO about the future of private funds regulation, focusing on the impact of the vacated SEC Private Funds Rules, best practices for fund sponsors, and the continued emphasis on enhanced reporting standards and SEC enforcement.
Read the full article on Private Funds CFO (subscription required).
Theane Evangelis recently joined the Pacific Research Institute’s (PRI) Next Round podcast to examine the historic decision made in Grants Pass v. Johnson.
Listen to the full episode on PRI.
David Casazza provided insights to Law Week Colorado regarding the significance of the U.S. Supreme Court’s decision in Truck Insurance Exchange v. Kaiser Gypsum Co., highlighting its importance for insurers and the future of mass tort Chapter 11 reorganizations.
Read the full article on Law Week Colorado (subscription required).
More than half of President Joe Biden’s federal appellate court appointments so far were in their 40s or younger when they joined the bench, the highest share for any modern Democratic president, a Bloomberg Law analysis shows.
Picking young judges is a way for presidents to better cement their legacy on the federal court system but can also pave the way for less experienced—and sometimes less vetted—people to secure lifetime positions, former judges and law professors said.
“There is something to be said about the wisdom that comes with a longer term of experience and practice,” said former judge Paul Watford, who was 44 when he joined the US Court of Appeals for the Ninth Circuit. “I don’t see anything good that comes from nominating people to the bench at a very young age, to be frank with you.”
Bloomberg Law’s analysis contains data from the Federal Judicial Center covering judges who received their commissions as of July 16. It shows that while the trend has varied some across administrations, the share of younger judicial picks across the courts has generally grown over time.
Less than a third of John F. Kennedy’s appointments for appellate and trial courts were turning an age younger than 50 the year they became judges, compared to nearly half of those appointed by Biden and Donald Trump, the data shows.
“Pretty much everybody thinks that the reason is that, today, presidents care much more about the ideological predilections of the people on the bench,” said Arthur Hellman, a University of Pittsburgh School of Law professor. And when a president cares about that, “you would like, as part of your legacy, to have judges ruling in that way for as long as possible,” Hellman said.
Roughly 53% of Biden appellate appointees turned 49 or younger during the year they received their commissions, and roughly 21% turned 44 or younger, the data shows.
At trial courts, about 22% of Biden appointees were under 45 when they became judges, a figure higher than recent Democratic presidents.
Biden’s move toward younger judges continues a practice championed by Trump. Nearly two-thirds of the Republican’s appellate judges were 49 or younger the year they received their commission—the highest share of any president in modern history.
But it has marked “a relatively dramatic shift from prior Democratic practice,” said John P. Collins, Jr., a law professor at George Washington University.
For comparison, roughly a quarter of Barack Obama’s circuit picks, and about 38% of Bill Clinton’s circuit judges, were under 50 when they joined the bench.
Just 5% of Obama’s appellate picks, and about 15% of his choices for district seats, were under 45.
Biden’s youngest appointments were Jamar Walker on the Richmond federal trial court and Bradley Garcia on the D.C. Circuit, who both turned 37 the year they became judges.
Trump’s youngest judge was Kathryn Mizelle, who was 33 when she joined the Middle District of Florida.
Trial Courts
Inexperience may be felt more acutely at the district court level, where judges have to make quick solo decisions on evidence presented during trials, former judges and law professors said. At the circuit court, cases are generally heard in panels of three, which allows for a more deliberative process.
Judging on trial courts is “much more about exercising judgment and discretion, where I think experience matters the most,” said Gregg Costa, a former judge on a Texas federal trial court and later on the Fifth Circuit. He was was 39 when he first joined the federal bench.
“You can’t cause damage on your own on the court of appeals. On the district court, in terms of what happens in your courtroom everyday, you’re completely unchecked,” said Costa, an Obama appointee to both courts who’s now in private practice.
Some younger district judges have already generated controversy in a short time.
Judge Aileen Cannon, a Trump appointee who joined the Southern District of Florida when she was in her late thirties, has drawn scrutiny over her handling—and recent dismissal—of criminal charges against Trump over his treatment of classified documents.
Cannon wrote in her Senate questionnaire when nominated that she had tried four cases to verdict in jury trials during her roughly seven years as a prosecutor.
And Joshua Kindred, who was 42 when he became an Alaska federal judge in 2020, recently resigned after he was found by a judiciary council to have sexually harassed his former clerk. Kindred told officials investigating the misconduct he was “overwhelmed with his job,” according to an order detailing the misconduct.
Asked about Kindred’s selection, Sen. Lisa Murkowski (R-Alaska) said this month the Trump administration “was very clear in saying they wanted judges, or they wanted nominees, who were younger.” She also noted Kindred wasn’t highly rated by the Alaska Bar Association, in part because he hadn’t practiced law long and wasn’t “as well-known amongst the broader bar.”
While someone of any age can engage in misconduct, there is a “greater risk” that younger people suddenly tasked with managing the equivalent of a “small law office” could abuse that authority, Costa said.
“With less maturity, I think there is more risk that people abuse the immense power that comes with being a federal judge,” Costa said.
Selecting younger judges can also sometimes mean there is less of a record for senators to vet, said Caroline Fredrickson, a senior fellow at the Brennan Center for Justice, a progressive nonprofit.
“You certainly could have a judge of her age who is competent and interested in following the law,” Fredrickson said, referring to Cannon. “But I think it’s harder to determine when someone is of the mind to be a pure ideologue when they have that much less of a paper trail.”
Michael Waldman, president of the Brennan Center, has called Cannon’s ruling dismissing charges against Trump a “truly radical decision.”
Other Costs
There are some benefits to selecting younger judges. It creates a deeper bench of younger people with years of experience on the bench in the event of a Supreme Court vacancy, said Collins.
Younger judges may also be more “attune to the current culture” and have more energy to handle heavy workloads, Hellman said.
Stiil, former judges said it can come at a cost.
Watford, now in private practice, hadn’t served as a judge before Obama tapped him for the nation’s largest appeals court, and he said he would’ve benefited from more years of experience as an attorney.
He recalled his first few years on the bench were “a little bit overwhelming.” In some cases he heard in his early years as judge, he “would have probably reached a different outcome” had he considered them later in his career “with more wisdom under the belt.”
Dale Ho, who was in his mid 40s when appointed by Biden to the Manhattan federal trial court last year, said at a recent bar association event that it has “been quite a learning curve.” He cited “the cadence of the job, the mechanics of the court, the expectations of litigants in areas that I don’t have a lot of experience in.”
By prioritizing age, presidents could also miss out on potential candidates with years of experience deemed too old.
“I have friends who are interested in being federal judges, and they’re like, ‘Oh, I’m 55, I’m too old now,’” Costa said. “When you’re so focused on age, and they have to be in their 40s, let’s say, you’re eliminating some incredibly talented and experienced lawyers.”
Some younger Obama-appointed judges, like Costa and Watford, have also begun to depart for corporate law firm jobs before they become eligible for retirement, undercutting any potential efforts by presidents to secure the seat for longer
“It should give presidents pause, and I think will give presidents pause, about nominating these younger people because the president wants his or her ideological legacy to extend for as long as possible,” Hellman said.
Reproduced with permission. Copyright July 24, 2024, Bloomberg Industry Group 800-372-1033 https://www.bloombergindustry.com
Featured in the Daily Journal, Julian Poon discusses successfully arguing three appellate cases in one week across California, demonstrating his dedication and enthusiasm for high-stakes litigation.
Read more in the Daily Journal [PDF].
Winston Chan provided Kron4 San Francisco key insights into the FBI’s raid on City of Oakland Mayor Sheng Thao’s home.
Watch the segment on Kron4.
Gibson Dunn has collaborated with the U.S. government on a pioneering AI safety initiative, leveraging its legal and policy expertise to shape regulatory frameworks, industry standards, and risk mitigation strategies—an effort recently highlighted by The American Lawyer.
Read the full article on The American Lawyer [PDF].
In an article for Tax Notes, Eric Sloan discusses the potential legal challenges and implementation issues surrounding the Treasury and IRS’s new guidance aimed at combating abusive related-party basis-shifting transactions.
Read the full article in Tax Notes (subscription required).
Katlin McKelvie discusses the implementation of the Modernization of Cosmetics Regulation Act (MoCRA), its challenges for brands in complying with new FDA regulations, and the changes consumers can expect in the beauty industry over the coming years in a recent episode of The Glossy Beauty Podcast.
Listen to the full episode on Glossy.
Michael Celio and Ashlie Beringer were featured in Lawdragon, reflecting on the firm’s legacy and evolving presence in Silicon Valley, while highlighting the firm’s adaptability, leadership, and expertise in emerging legal fields like AI, cryptocurrency, and cybersecurity.
Read the full interview on Lawdragon [PDF].
The dawn of a new era in crypto regulation was evident during the SEC Crypto Task Force’s inaugural roundtable on March 21, 2025. Crypto enthusiasts and skeptics met to discuss and debate the definition of a “security,” the regulation of digital assets, and the type of “fit-for-purpose” regulatory and disclosure framework that could be developed for such assets.
Crypto & The SEC: A New Era
This inaugural roundtable was part of the SEC’s “Spring Sprint to Crypto Clarity“ series that aims to explore key areas of interest in the regulation of digital assets. Featuring industry supporters and critics alike, the roundtable discussions generally centered on three key issues:
- Understanding how the definition of a “security” under the federal securities laws should be applied to digital assets;
- Development of a new regulatory framework under the federal securities laws applicable to digital assets; and
- Judicial precedents and emerging legislative initiatives that will inform the SEC’s authority and approach, which market participants should bear in mind given the uncertainty that will likely persist in the regulatory environment.
I. The Investment Contract Analysis under the Howey Test
To date, the SEC’s efforts to regulate digital assets have largely pivoted on the application of the “Howey” test in determining whether the digital asset is an “investment contract” and, therefore, a security subject to the federal securities laws.[1] The “investment contract” analysis set forth by the U.S. Supreme Court in SEC v. W.J. Howey requires four elements to be met for an “investment contract” to exist: (i) there is an investment of money (ii) in a common enterprise (iii) with a reasonable expectation of profits (iv) to be derived from the efforts of others.[2] In its 2019 Framework for “Investment Contract” Analysis of Digital Assets (the “Framework”),[3] the SEC Staff emphasized that determining whether a particular digital asset at the time of its offer or sale satisfies the Howey test depends on the specific facts and circumstances, and the inquiry is focused on the “economic realities” of the transaction. In prior years, the SEC has brought numerous crypto-related enforcement actions and civil suits and employed an expansive application of the Howey test to digital assets.
II. The SEC and its Staff Signal a Policy Shift in Application of the Howey Test
The formation of the Crypto Task Force, launch of the inaugural roundtable, and recent SEC staff guidance on meme coins and on proof-of-work mining activities appear to signal a policy shift away from prior years in how the SEC will apply and interpret Howey and the regulation of digital assets.
On February 27, 2025, the Staff of the SEC’s Division of Corporation Finance (the “Staff”) issued guidance on meme coins,[4] indicating that transactions in these digital assets generally do not involve the offer and sale of securities under federal securities laws.[5] The Staff reasoned that purchasers of meme coins make no investment in a common enterprise because their funds “are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise.”[6] Rather, the value of meme coins comes from “speculative trading and the collective sentiment of the market, like a collectible.”[7]
As discussed in Gibson Dunn’s March 21, 2025 Client Alert, on March 20, 2025, the Staff released a statement[8] providing its views on certain activities on proof-of-work (PoW) networks known as “mining.” The Staff stated that the mining activities described in the statement (i.e., “Protocol Mining”) generally do not constitute the offer and sale of securities under the federal securities laws, because the act of Protocol Mining, whether by solo miners or mining pools,[9] does not involve an expectation of profit derived from the entrepreneurial or managerial efforts of others. Rather, the miner’s expectation to receive rewards is “derived from the administrative or ministerial act of Protocol Mining performed by the miner.”[10] As such, rewards are “payments to the miner in exchange for services it provides to the network rather than profits derived from the entrepreneurial or managerial efforts of others.”[11]
Notably, Democrat Commissioner Caroline A. Crenshaw issued statements criticizing both the meme coin and PoW Staff guidance, contending that in both circumstances, the guidance failed to address the need for a facts and circumstances analysis focused on the economic realities of the specific arrangement under the Howey test.
Taken together, the Staff’s position on meme coins and PoW mining activities suggest that market participants may expect a reappraisal of the Howey test from the new SEC and its Staff going forward, one more focused on a common-sense analysis.
III. Key Discussion Points from the Roundtable
Roundtable panelists explored both the challenges and opportunities associated with defining the security status of digital assets, and several important themes emerged:
- Challenges of Applying the Howey Test: Several panelists noted the difficulty of applying the Howey test in a consistent and predictable manner and questioned whether it continues to be responsive to the different mix of risks inherent in the novel technological arrangements that underpin crypto tokens and other digital assets. For example, panelists observed that Howey was decided at a time when information was disseminated in a print format, which gave rise to certain informational asymmetries that the securities laws were designed to address, whereas the same inquiry may not be an effective way of surfacing the relevant risks and other questions about ownership and control that characterize digital assets. Many panelists also argued that in order to be effective, a principles-based regulatory regime needs to recognize that digital assets’ features can vary considerably across different asset classes and change over the life of a particular digital asset. Several panelists suggested that the SEC consider a model based on the concept of control; in their view, where a digital asset’s underlying protocol is sufficiently decentralized, such that it is no longer controlled by individual human actors (such as a founder, promoter, or manager), the trust and risk profiles associated with the system no longer give rise to the information concerns the federal securities laws were designed to address. They advocated that in such cases, the federal securities laws should not apply. Others sounded a more cautionary note, including the view that a test based on control would result in similar line-drawing challenges that arise under Howey and would still depend on a facts and circumstances analysis.
- The SEC’s Jurisdictional Authority: Panelists considered the appropriateness of the SEC’s jurisdictional authority to regulate the digital assets industry relative to other regulatory agencies, such as the Commodity Futures Trading Commission (the “CFTC”), which has jurisdictional authority over digital assets that are commodities and which has been viewed by some as a more appropriate regulator for the industry. In light of many digital assets being marketed to retail investors and other economic realities, one panelist reasoned that, from a policy perspective, the SEC’s investor protection mandate makes it an ideal regulator in certain respects. In contrast, other panelists argued that the SEC should explicitly exempt digital assets from being subject to the federal securities laws.
- A Path to Compliance: Several industry participants noted that many digital asset companies and promoters are eager for clarity in the application of the regulatory framework and a path to compliance. One panelist encouraged the SEC to consider an interim regulatory framework with a built-in sunset that would allow industry participants to opt-in, temporarily, to being regulated while providing the SEC with time and practical experience to refine its approach and work toward notice and comment rulemaking. Another panelist underscored that the Securities Act and the Exchange Act provide broad exemptive authority to the SEC, which the SEC should exercise to narrow the definition of a security to exclude digital assets.
- The Continuing Importance of Judicial Decisions. Several panelists were quick to note that previous SEC enforcement actions as well as state enforcement and private litigation have already produced a significant body of case law applying the Howey test and other securities law concepts to digital assets; these precedents will continue to expose industry participants to uncertainty and litigation risk, particularly post-Loper Bright.[12]
IV. Important Considerations Going Forward
Notwithstanding these SEC developments and the broader policy shifts they may foretell, market participants should bear in mind that existing judicial decisions will continue to serve as precedent for transactions in digital assets and anticipated legislation will ultimately shape the regulatory environment for the industry.
Although the SEC has recently dropped or paused many of its high-profile lawsuits and investigations against major players in the crypto industry, private litigants may continue to rely on judicial decisions in prior SEC enforcement cases, which could continue to expose industry participants to uncertainty and litigation risk.[13]
In addition, many industry commentators expect that under a crypto-friendly administration, the Republican-controlled U.S. Congress will prioritize passing comprehensive legislation aimed at clarifying the regulatory environment around digital assets. Any final legislation will have a significant impact on the industry going forward. Although these developments are in the early stages, key legislative efforts include the following:
- The GENIUS Act: On March 13, 2025, the Senate Banking Committee approved the Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025 (the “GENIUS Act”). The GENIUS Act would establish a comprehensive regulatory framework for the issuance and regulation of “payment stablecoins” in the United States.[14] Importantly, the GENIUS Act would explicitly exclude payment stablecoins from the federal regulatory regimes for securities, commodities, and investment companies, placing qualified payment stablecoin issuers outside the SEC’s regulatory authority, and payment stablecoins would be excluded from the definition of “security” under the federal securities laws.[15] The GENIUS Act is the first digital asset-related legislation approved by a congressional committee in the 119th Congress, and it will now move to the full Senate for consideration, where it is expected to receive bipartisan support.
- FIT 21: Under the previous Congress, on May 22, 2024, the U.S. House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT 21). Key features of FIT 21 include provisions that would remove “investment contracts” that are recorded on a blockchain from the statutory definition of “security” if certain conditions are met. FIT 21 represents an effort by lawmakers to police the boundaries of the Howey test’s application to digital assets and to delineate more clearly the regulatory responsibilities of the SEC and the CFTC. Although FIT 21 was not signed into law, lawmakers have explained that FIT 21 is a starting point for new legislation to be introduced in this Congress.
The roundtable surfaced many of the challenges associated with defining digital assets’ status as “securities,” while clearly demonstrating the need for a pathway to compliance that helps protect both entrepreneurs and investors to the extent the securities laws apply to digital assets. It appears that the SEC will continue to re-assess and clarify its interpretation of the Howey test’s application to digital assets. The SEC also will likely continue its work towards providing a clearer regulatory framework.
Accordingly, while industry participants should expect additional changes in the SEC’s policy and enforcement approach towards digital assets, they should be mindful of legal risks that potentially apply to their current business and strategic plans. Moreover, a reduction in SEC crypto-focused enforcement should not be interpreted as the elimination of litigation risk associated with digital assets, especially given the possible emergence of a significantly more active private civil litigation bar.
Finally, in contrast to the last several years, it appears from the roundtable and the recent Staff guidance that the Staff may be ready for productive engagement and consultation with individual market participants.
[1] The term “security” is defined in Section 2(a)(1) of the Securities Act of 1933, as amended (Securities Act), Section 3(a)(10) of the Securities Exchange Act of 1934, as amended (Exchange Act), Section 2(a)(36) of the Investment Company Act of 1940, and Section 202(a)(18) of the Investment Advisers Act of 1940, and includes the term, “investment contract.”
[2] See SEC v. W.J. Howey Co., 328 U.S. 293 (1946) (“Howey”).
[3] Framework for “Investment Contract” Analysis of Digital Assets (Apr. 3, 2019), https://www.sec.gov/about/divisions-offices/division-corporation-finance/framework-investment-contract-analysis-digital-assets. See also William Hinman, Digital Asset Transactions: When Howey Met Gary (Plastic), Remarks at the Yahoo Finance All Markets Summit: Crypto (Jun. 14, 2018), https://www.sec.gov/news/speech/speech-hinman-061418.
[4] The Staff defined a meme coin as “a type of crypto asset inspired by internet memes, characters, current events, or trends for which the promoter seeks to attract an enthusiastic online community.”
[5] Staff Statement on Meme Coins, Division of Corporation Finance (Feb. 27, 2025), https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme-coins.
[6] Id.
[7] Id.
[8] Statement on Certain Proof-of-Work Mining Activities, Division of Corporation Finance (Mar. 20, 2025), https://www.sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025?utm_medium=email&utm_source=govdelivery#_ftnref1.
[9] Mining pools are arrangements where computational resources are pooled to increase participating miners’ chances of successfully validating transactions and earning rewards. Mining pools may be administered by a pool operator who typically is responsible for coordinating the miners’ computational resources, maintaining the pool’s mining hardware and software, overseeing the pool’s security measures to protect against theft and cyberattacks, and ensuring that the miners are paid rewards.
[10] Statement on Certain Proof-of-Work Mining Activities, supra note 8.
[11] Id.
[12] See Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), in which the U.S. Supreme Court overruled Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984), and provided that judges must independently interpret statutes without deference to an agency’s reading of the law.
[13] See, e.g., SEC v. Terraform Labs Pte. Ltd., 2023 WL 8944860 (S.D.N.Y. Dec. 28, 2023); SEC v. Terraform Labs Pte Ltd., 2023 WL 4858299 (S.D.N.Y. July 31, 2023).
[14] The GENIUS Act defines a payment stablecoin as a digital asset that is or is designed to be used as a means of payment or settlement if: (i) the issuer is obligated to convert, redeem, or repurchase for a fixed amount of monetary value; (ii) it will maintain a stable value relative to the value of a fixed amount of monetary value; and (iii) it is not a national currency, bank deposit, interest-bearing instrument, or a security under federal securities laws (other than by virtue of being a bond, note, evidence of indebtedness, or investment contract). GENIUS Act, § 2(15)(A).
[15] Under the GENIUS Act, payment stablecoins would also be excluded from the definition of “commodity” in the Commodity Exchange Act of 1936, and the definition of an “investment company” under the Investment Company Act of 1940.
Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Regulation & Corporate Governance or Fintech & Digital Assets practice groups, the authors, or any of the following practice leaders and members:
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Fintech and Digital Assets:
M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)
Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)
Sara K. Weed – Washington, D.C. (+1 202.955.8507, sweed@gibsondunn.com)
Matt Gregory – Washington, D.C. (+1 202.887.3635, mgregory@gibsondunn.com)
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