An important milestone was marked on Tuesday (November 27), on the rolling issue of the US Securities and Exchange Commission’s (SEC) regulation of initial coin offerings (ICOs) in the country, as San Diego District Judge Gonzalo Curiel denied the SEC’s request for a preliminary injunction to freeze assets related to the Blockvest ICO. The case will now go to trial.

According to, this is the first instance of the SEC being checked in its campaign to crack down on what it sees as unregistered securities sales.

Judge Curiel was not convinced, pending a “full discovery,” that Blockvest’s private token sale constituted an unregulated security sale. He picked apart in the SEC’s arguments two different “prongs,” or aspects of the co-called Howey Test – a watershed 1946 case that has come to form the go-to definition of a US financial security product.

[A] contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.

The 'Howey Test'

The judge took issue with both the “investment of money” and “expectation of profit” prongs of the SEC’s case against Blockvest.

A key determinant of securities rulings is what the defendants can be shown to have believed they were purchasing, and thus “courts frequently examine promotional material associated with the transaction” according to Judge Curiel.

Without delving too far into the legal complexities, in this case the judge ruled with respect to the “investment of money” prong that:

Plaintiff and Defendants provide starkly different facts as to what the 32 test investors relied on, in terms of promotional materials, information, economic inducements or oral representations at the seminars, before they purchased the test BLV tokens. Therefore, because there are disputed issues of fact, the Court cannot make a determination whether the test BLV tokens were “securities” under the first prong of Howey.

Gonzalo Curiel

As for the “expectation of profit” from a third party’s work, the judge ruled that “While Defendants claim that they had an expectation in Blockvest’s future business, no evidence is provided to support the test investors’ expectation of profits.”

Mike Dicke, who previously worked for the SEC’s San Francisco office, said “I think that my biggest takeaway from the order is that the SEC failed to prove that the way it was ‘offered and sold’ meets the definition of a security,” according to

What Does It Mean For The Industry

This ruling comes on the heels of a somewhat controversial settlement between the SEC and EtherDelta founder Zachary Coburn, whereby Coburn opted to avoid court without admitting guilt by paying just under $400,000 in fines. The controversy stemmed from the fact that despite EtherDelta being a decentralized exchange, Coburn was charged with operating an unregistered securities exchange.

The fact that Coburn chose to settle out of court is perhaps cast in a new light after this ruling, which has shown that the SEC has a higher burden of proof than perhaps was clear to observers before.

In October, many news outlets reported an increasing momentum of the SEC’s “crackdown” on ICOs it considered fraudulent or illegally unregistered. Time will tell if that momentum has been stymied or not, even if only temporarily.