Indiana Int’l & Comp. Law Review
Volume 33 Number 1 2023

ARTICLES

THE LONG ARM OF THE SEC IN THE REGULATION

OF DIGITAL CURRENCIES

FRANK EMMERT*

I. INTRODUCTION

Among the most fundamental principles governing international law and
international relations are the sovereign equality of states,1 and the principle of

* John S. Grimes Professor of Law and Director of the Center for International and

Comparative Law at Indiana University Robert H. McKinney School of Law with law degrees from

Germany, the Netherlands, and the U.S. I have been advising companies in the blockchain space

since 2017 and I am teaching Blockchain and Digital Currency Law at the Indiana University

Maurer School of Law. I am a co-founder of the Blockchain Law Alliance and regularly speaking

at conferences and events about blockchain and digital currency regulation. Most of my

publications and presentations, including several on blockchain and digital currency law, are freely

accessible at https://www.researchgate.net/profile/Frank-Emmert. 

I would like to thank my assistants Adam Kashin, Rick Tapia, and Can Okandan for

background research going into the present Article. Any remaining errors or omissions are mine

alone. For comments or questions please e-mail femmert@iupui.edu.

1. The principle was enshrined as Article 2(1) in the Chapter on Purposes and Principles of

the Charter of the United Nations (UN). U.N. Charter art. 2, ¶1. As Kelsen has pointed out, the

principle had already been enunciated in the so-called Four Power Declaration adopted at the

Moscow conference of October 1943 by the Governments of the United States of America, the

United Kingdom, the Soviet Union, and China, who recognized “the necessity of establishing . .

. a general international organization, based on the principle of sovereign equality of all peace-

loving States . . . .” See Hans Kelsen, The Principle of Sovereign Equality of States as a Basis for

International Organization, 53 YALE L.J. 207, 207-20 (1944). Since then, the principle has been

enshrined in numerous international declarations and documents, such as the 1947 UN Draft

Declaration on Rights and Duties of States (Arts. 1, 5 and 14), the 1970 UN Friendly Relations

Declaration, and the 1974 UN Charter of Economic Rights and Duties of States (Art. 2(1)). The

principle has also been endorsed in numerous decisions of the International Court of Justice. See,

e.g., Bardo Fassbender & Albert Bleckmann, Article 2(1), in 1 THE CHARTER OF THE UNITED

NATIONS: A COMMENTARY 68 ¶¶ 35-44 (Bruno Simma et al. eds, 2d ed. 2002). As a consequence,

it is widely accepted as universally binding; See, e.g., Hannah Woolaver, Sovereign Equality as a

Peremptory Norm of General International Law, in PEREMPTORY NORMS OF GENERAL

INTERNATIONAL LAW (JUS COGENS) 713-739 (Dire Tladi ed., 2021). For further analysis, see



2 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

non-intervention in the domestic affairs of other states.2 These principles have,
at times, been more or less restrictively interpreted,3 but they make it clear that
the authorities of one state need to pass a very high bar before they can act in
ways that interfere with the sovereignty of another state. First, a state needs to
have jurisdiction to act. Second, if more than one state should claim jurisdiction
over the same matter, certain conflict rules need to be respected. Third, there are
specific bars that are hard to overcome—for example the prohibition of the use
of force against another state4—and specific rules that may have to be respected,
for example the principle of proportionality in response to an unlawful act.5

ROBERT A. KLEIN, SOVEREIGN EQUALITY AMONG STATES: THE HISTORY OF AN IDEA (1974).

2. As Nolte points out, the non-intervention principle enshrined in Article 2(7) of the

Charter of the United Nations “protects only against acts of the United Nations and not against acts

of other States.”  It is, however, “lex specialis” to a more “general principle of non-intervention ...

derived from Arts. 2(1) and (4) of the Charter and from customary international law.” See Georg

Nolte, Article 2(7), in 1 THE CHARTER OF THE UNITED NATIONS: A COMMENTARY, supra note 1,

¶ 7; See U.N. Charter art. 2, §7. Although Niki Aloupi has persuasively argued that the right to non-

intervention or non-interference cannot be broadly qualified as an absolute right at the level of jus

cogens, and that only an illegal threat or use of force against another state violates jus cogens, Niki

Aloupi, The Right to Non-Intervention and Non-Interference, 4 CAMBRIDGE INT’L L.J. 566-587

(2015), it is equally clear that each and every state is under an obligation to respect the sovereignty

and territorial integrity of other states by refraining from interventions in other states’ domestic

affairs unless there are compelling reasons, in particular those necessitating a humanitarian

intervention. See ELLERY C. STOWELL, INTERVENTION IN INTERNATIONAL LAW (1921). For more

contemporary examples, see Nancy D. Arnison, International Law and Non-Intervention: When

Do Humanitarian Concerns Supersede Sovereignty?,17 FLETCHER F. WORLD AFFS. 199-211

(1993); Chris O’Meara, Should International Law Recognize a Right of Humanitarian

Intervention?, 66 INT’L & COMP. L.Q. 441-466 (2017).

3. For a less restrictive approach, see, e.g., Anthony D’Amato, There Is No Norm of

Intervention or Non-Intervention in International Law, 7 INT’L LEGAL THEORY 33 (2011). Even

D’Amato acknowledges, however, that sovereignty and sovereign equality of states prevent

interventions in other states in the absence of compelling reasons, in particular for the prevention

or termination of massive human rights violations. Id. 

4. See, e.g., Jean d’Aspremont, Mapping the Concepts Behind the Contemporary

Liberalization of the Use of Force in International Law, 31 UNIV. PA. J. INT’L L. 1089-1148 (2010);

RUSSELL BUCHAN & NICHOLAS TSAGOURIAS, REGULATING THE USE OF FORCE IN INTERNATIONAL

LAW: STABILITY AND CHANGE (2022);  Olivier Corten & Vaios Koutroulis, The Jus Cogens Status

of the Prohibition of the Use of Force - What Is Its Scope and Why Does It Matter?, in

PEREMPTORY NORMS OF GENERAL INTERNATIONAL LAW (JUS COGENS), supra note 1, at 629-67.

5. See MICHAEL NEWTON & LARRY MAY, The Uniqueness of Jus in Bello Proportionality,

in PROPORTIONALITY IN INTERNATIONAL LAW 155 (2014); see also JUDITH GARDAM, NECESSITY,

PROPORTIONALITY AND THE USE OF FORCE BY STATES (2004); NECESSITY AND PROPORTIONALITY

IN INTERNATIONAL PEACE AND SECURITY LAW (Claus Kreß & Robert Lawless eds., 2020); ALEC

STONE SWEET & JUD MATHEWS, PROPORTIONALITY BALANCING & CONSTITUTIONAL

GOVERNANCE: A COMPARATIVE & GLOBAL APPROACH (2019). For a discussion of proportionality

as “an instrumental part of the rule of law and an essential check on government power,” see E.



2023] THE LONG ARM OF THE SEC 3

Part II, provides a detailed analysis of these rules of international law and the
rules applied in the U.S. with regard to extraterritorial application of domestic
laws. Part III will showcase how a number of decisions of the U.S. Securities and
Exchange Commission (SEC)6 and the U.S. Commodity Futures Trading
Commission (CFTC)7 in matters of blockchain technology and digital currencies
stack up against these rules and principles of national and international law.
While the SEC and the CFTC have been the main authors of the decisions to be
investigated, a few remarks about the activities of the Department of Justice
(DoJ)8 will also be included. Part IV discusses stated and unstated justifications
for the use of extraterritorial or long-arm jurisdiction by the SEC and CFTC and
why they fall short in justifying at least some of these cases. To an extent, I will
speculate about the motives of the regulators as they generously stretch the limits
of their jurisdiction.9 Finally, Part V offers some conclusions and suggestions for
the way forward.

II. THE RULES APPLICABLE TO THE EXERCISE OF EXTRATERRITORIAL

OR LONG-ARM JURISDICTION

1. Jurisdiction

According to the Restatement (Fourth) of Foreign Relations Law
(subsequently referred to as “the Restatement”), “[j]urisdiction refers to the
authority of a state to make, apply, and enforce law.”10

THOMAS SULLIVAN & RICHARD S. FRASE, PROPORTIONALITY PRINCIPLES IN AMERICAN LAW:

CONTROLLING EXCESSIVE GOVERNMENT ACTIONS (2008).

6. See SECURITIES AND EXCHANGE COMMISSION, https://www.sec.gov/ [https://perma.cc/

C8KP-F427].

7. See COMMODITY FUTURES TRADING COMMISSION, https://www.cftc.gov/ [https://perma.

cc/V8FP-2836].

8. On 6 September 2022, the DoJ published a report pursuant to Sec. 5(b)(iii) of President

Biden’s Executive Order 14067 Ensuring Responsible Development of Digital Assets of 9 March

2022. See U.S. DEP’T OF JUST., OFF. OF THE ATT’Y GEN, THE ROLE OF LAW ENFORCEMENT IN

DETECTING, INVESTIGATING, AND PROSECUTING CRIMINAL ACTIVITY RELATED TO DIGITAL ASSETS

(2022), https://www.justice.gov/ag/page/file/1535236/download [https://perma.cc/STE2-EN5D].

The report complements an earlier Report of the Attorney General. See U.S. DEP’T OF JUST., OFF.

OF THE ATT’Y GEN, HOW TO STRENGTHEN INTERNATIONAL LAW ENFORCEMENT COOPERATION FOR

DETECTING, INVESTIGATING, AND PROSECUTING CRIMINAL ACTIVITY RELATED TO DIGITAL ASSETS

(2022), https://www.justice.gov/ag/page/file/1510931/download [https://perma.cc/JE7G-KERJ].

9. Kevin Roose recently suggested that “[r]ight now, the biggest threat to crypto – in the

United States, at least – is that the people who are in charge of regulating the industry seem to want

to ban it.” Kevin Roose, Can ‘The Merge’ Save Crypto?, N.Y. TIMES (Sept. 15, 2022) https://www.

nytimes.com/2022/09/15/technology/merge-ether eum-crypto.html [https://perma.cc/9DTG-46TL].

10. RESTATEMENT (FOURTH) OF THE FOREIGN RELS. L. OF THE U.S. pt. IV, intro. note (AM.

L. INST. 2019).

The Restatement elaborates as follows: “The foreign relations law of the United States



4 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

Jurisdiction to prescribe is the authority of a state to make law applicable
to persons, property, or conduct. Legislative bodies exercise prescriptive
jurisdiction when they enact statutes, but so does the executive branch
when it adopts generally applicable orders or regulations, and so do
courts when they make generally applicable common law. 
Jurisdiction to adjudicate is the authority of a state to apply law to
persons or things, in particular through the processes of its courts or
administrative tribunals. [...]
Jurisdiction to enforce is the authority of a state to exercise its power to
compel compliance with law.11

On the basis of these principles, international law recognizes the power of
states to exercise prescriptive or regulatory jurisdiction only in the following
cases:

Pursuant to the territoriality principle, a country can regulate all
activities that take place within its borders, which include embassies in
foreign countries, as well as ships and aircraft flying the flag of the
respective country.[12] Hence, anybody driving on U.S. roads has to
observe the posted speed limits, regardless of their nationality. Along the
same lines, anybody [...] selling goods inside the U.S. has to observe U.S.
federal and/or state standards for health and safety and the protection of
the environment, regardless of where the goods were made. Finally, U.S.
federal law can prohibit smoking on commercial aircraft registered in the
U.S., regardless of where they may be at any given time around the
globe.

divides jurisdiction into three categories:

(a) jurisdiction to prescribe, i.e., the authority of a state to make law applicable to

persons, property, or conduct;

(b) jurisdiction to adjudicate, i.e., the authority of a state to apply law to persons or

things, in particular through the processes of its courts or administrative tribunals;

and

(c) jurisdiction to enforce, i.e., the authority of a state to exercise its power to compel

compliance with law.”

See id. § 401 Categories of Jurisdiction.

11. Id. (emphasis added).

12. Although the territoriality principle, at least when it comes to the proper territory of a

state, is the strongest of the jurisdictional bases for the use of regulatory and enforcement powers,

it is not unlimited. Already in the 1930s, it was recognized that a state must not use or allow the use

of its territory in ways that cause preventable harm to other states, for example via transboundary

pollution. See U.N. OFF. OF LEGAL AFFAIRS, CODIFICATION DIV., 3 REPORTS OF INTERNATIONAL

ARBITRAL AWARDS, at 1905-82, U.N. Sales No. 1949.V.2.; John Wirth, The Trail Smelter Dispute:

Canadians and Americans Confront Transboundary Pollution, 1927-41, 1 ENV’T HIST. 34-51

(1996).



2023] THE LONG ARM OF THE SEC 5

On the basis of the active personality principle, countries can also
regulate activities of their citizens/nationals wherever they take place.
For example, the U.S., in principle, applies its tax laws to U.S. citizens
wherever the taxable revenue is made and regardless of the place of
residence of the taxpayer.[13] By contrast, many other countries only tax
the worldwide income of individuals or corporations that have their place

13. This can lead to double taxation if a U.S. citizen is living abroad. In general, the

worldwide income of an individual will be taxed by the country of residence. Countries other than

the country of residence usually only tax whatever income a non-resident may have acquired in

their territory. Some countries, like the U.S., however, also tax the worldwide income on the basis

of citizenship. For Americans living abroad, unless there is a so-called Double Taxation Agreement

(DTA) in place between the U.S. and the country of residence, the income will actually be taxed

twice. For example, if an American is living in Germany and has gross worldwide income of about

$100,000, Germany will charge income tax at a rate of about 42% on the worldwide income. As

an American citizen, however, she will also have to file a tax declaration in the U.S. and pay

income tax at a rate of about 24% on the entire worldwide income. In the absence of a DTA, the

total tax burden would amount to a whopping 66%. However, with the current DTA in place,

Germany, as the place of residence and employment would be first to levy its income tax and the

U.S., as “merely” the place of citizenship, would only top up the taxation if the tax already paid in

the first country is lower. In this example, the U.S. would not add more taxes and the total tax

burden would be 42%. By contrast, if the American was living in Dubai and paying only 10% tax

on an income of $100,000, the U.S. would add 14% to bring the total tax burden to the U.S. rate

of 24%. 

Even if a country does not levy income tax “merely” on the basis of citizenship, double

taxation can occur if the country of residence taxes the worldwide income, as is generally accepted,

and other countries levy their taxes on the portion of the worldwide income that is earned in their

respective territories. For example, if a German resident also has income from a rental property in

Costa Rica, the Germans will tax the worldwide income, including the income in Costa Rica, and

Costa Rica will tax the local income from the rental property. Once again, without a DTA, double

taxation would happen. With a DTA, Costa Rica would collect on the rental income and Germany

would give a credit for the taxes already paid in Costa Rica and only tax the rental income if the

tax rate in Costa Rica was lower than the tax rate that would be applied in Germany. In this way,

DTAs avoid double taxation but always result in a total tax burden equivalent to the higher of the

two country rates. 

Yet another layer of complexity is potentially added for a U.S. citizen living abroad. If our

German resident with the Costa Rica rental property is an American citizen, she would potentially

pay three times for the rental income. However, if DTAs are in place between Germany and the

U.S., and for the U.S. and Costa Rica, the latter would first tax the rental income, then Germany

would tax the worldwide income while giving credit for tax already paid in Costa Rica, and then

the U.S. would tax if the total rate of income tax should still be lower than the U.S. rate of income

tax on the worldwide income. We could say that the sequencing is determined by the closeness of

the connection. Costa Rica is most closely connected to the rental property for that part of the

income, and Germany is still closer connected than the U.S. for the worldwide income because of

the physical residence in Germany. For further discussion, see BRET WELLS, INTERNATIONAL

TAXATION (5th ed. 2022).



6 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

of residence or incorporation within their territory, as well as any income
that is earned within their borders. Hence, Germans living abroad do not
pay taxes to the German authorities, unless they have some income
source in Germany. However, Germany does make use of the active
personality principle in criminal law by subjecting criminal activities of
German citizens to its penal code, regardless of where they are
committed.

Next is the so-called passive personality principle, which allows
countries to apply their laws in cases where something is done to one of
their citizens, even if the act is committed abroad. To illustrate the
application of these first three principles of jurisdiction – and the
potential conflicts – we could imagine a German and a British citizen
getting into a fight in a bar in Australia. If the German causes injury to
the Briton, Australia can apply its criminal law based on the territoriality
principle. However, Germany can also prosecute the offender based on
the active personality principle. Finally, the United Kingdom could
exercise jurisdiction on the basis of the passive personality principle.14

Outside of these categories, states are not supposed to exercise their
prescriptive or regulatory powers unless one of just a few narrow exceptions
applies. The most important of those exceptions are triggered if a subject matter
falls outside of any territorial jurisdiction, for example the protection of marine
life on the high seas,15 or in case of the inability or unwillingness of a territorial
sovereign to prevent or terminate massive human rights violations.16 The bar for

14. FRANK EMMERT, INTERNATIONAL BUSINESS TRANSACTIONS- TEXT, CASES, AND

MATERIALS 28-29 (2nd ed. 2021).

15. Spanish tax laws provide another example. Spain, like most countries, will levy income

tax on residents, defined as individuals spending at least 183 days a year in the country. Begoñia

Pérez-Bernabeu, The New Tax Regime for Expatriates in Spain, 34 Intertax 263 (2006). This

standard is universally accepted since nobody can spend more than half of the year in more than

one country, making it perfectly reasonable for the country of the main of several possible

residences to lay claim to taxation of the worldwide income on the basis of residence. However,

as the Colombian pop star Shakira is currently finding out, Spain will also tax her worldwide

income on the basis of the location of her spouse and children in Spain in spite of the fact that

Shakira was out of the country and on tour for more than 186 days in 2012, 2013, and 2014.

Normally this could be a case of conflict with the real country of residence. However, in those years

Shakira traveled so much that she did not spend at least 186 days anywhere and—presumably—also

did not declare her worldwide income for taxation anywhere. Spain simply applies a presumption

that individuals with close family in Spain who cannot show tax residency anywhere else, have

their de facto center of economic interests in Spain. See Remy Tumin & Jose Bautista, Shakira is

Accused of Tax Evasion in Spain. Here’s What We Know., N.Y. TIMES (Sept. 29, 2022)

https://www.nytimes.com/2022/09/29/world/europe/shakira-tax-fraud-explained.html

[https://perma.cc/WVK2-SGJ3].

16. See, e.g., CHARLES DOYLE, CONG. RSCH. SERV., RS22497, EXTRATERRITORIAL



2023] THE LONG ARM OF THE SEC 7

the exercise of this universal jurisdiction is even higher when it comes to the
exercise of judicial or enforcement powers, rather than mere regulatory powers.17

Whenever the authorities of one state go beyond these limits and exercise so-
called extraterritorial jurisdiction, they invariably bump up against the sovereign
rights of other states, whether it is the home state of the crew or flag state of the
fishing vessel polluting the high seas, or the state tolerating or even encouraging
massive human rights violations against a minority like the Rohingya in
Myanmar. As the examples illustrate, an exercise of extraterritorial jurisdiction
is not always illegal, but it must always be justified.

From the time it gained its independence, the U.S. “has been subject to ‘the
law of nations.’”18 As Nafziger et al remind us, “[a] famous dictum in the case of
The Paquete Habana, 175 U.S. 677 (1900), confirmed earlier authority that,
although Article VI(2) of the U.S. Constitution established only one of the
sources of international law, treaties, as the supreme law of the land, all
international law applies in the mixed monist-dualist system of the United States.
This dictum begins as follows:

‘International law is part of our law, and must be ascertained and
administered by the courts of justice of appropriate jurisdiction as often
as questions of right depending upon it are duly presented for their
determination. For this purpose, where there is no treaty and no
controlling executive or legislative act or judicial decision, resort must
be had to the customs and usages [of states] . . . .’19

Consistent with this dictum, the Restatement comments on domestic rules in
U.S. law dealing with the exercise of jurisdiction in international cases: “The
United States exercises prescriptive jurisdiction on the bases recognized by
customary international law, subject to the limits of the Constitution and the
principles of statutory interpretation that determine the geographic scope of
ambiguous statutes.”20The limits of the Constitution were interpreted by the U.S.

APPLICATION OF AMERICAN CRIMINAL LAW: AN ABBREVIATED SKETCH (2012); AISLING

O’SULLIVAN, UNIVERSAL JURISDICTION IN INTERNATIONAL CRIMINAL LAW- THE DEBATE AND THE

BATTLE FOR HEGEMONY (2017); NIENKE VAN DER HAVE, THE PREVENTION OF GROSS HUMAN RIGHTS

VIOLATIONS UNDER INTERNATIONAL HUMAN RIGHTS LAWS (2018).

17. For more information, see, in particular, The Princeton Project on Universal Jurisdiction,

a collaboration between Princeton University’s Program in Law and Public Affairs (LAPA), the

Woodrow Wilson School of Public and International Affairs, the International Commission of

Jurists, the American Association for the International Commission of Jurists, the Urban Morgan

Institute for Human Rights, and the Netherlands Institute of Human Rights. The project published

the Princeton Principles on Universal Jurisdiction. See The Princeton Project, Princeton Principles

on Universal Jurisdiction, in INTERNATIONAL LAW: CLASSIC AND CONTEMPORARY READINGS 185-

202 (Charlotte Ku & Paul F. Diehl (eds.), 2009)

18. JAMES NAFZIGER, ANASTASIA TELESETSKY & VED NANDA, PRIVATE INTERNATIONAL

LAW: AVOIDING AND RESOLVING CONFLICT OF LAWS 32 (2022).

19. Id. at 33.

20. See RESTATEMENT (FOURTH) OF THE FOREIGN RELS. L. OF THE U.S. RESTATEMENT § 401



8 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

Supreme Court as early as 1804 in The Charming Betsy Case: “... an act of
Congress ought never to be construed to violate the law of nations if any other
possible construction remains.”21

Extraterritorial application of domestic law has always been problematic
because of the potential conflict with the sovereign equality of states and the
principle of non-intervention in the domestic affairs of other states. An oft cited
expression of this approach is the decision of the U.S. Supreme Court regarding
the application of the Sherman Antitrust Act of 189022 in American Banana:
“[T]he general and almost universal rule is that the character of an act as lawful
or unlawful must be determined wholly by the law of the country where the act
is done.”23 The narrow and territorial interpretation of the Sherman Act was cast
aside by Judge Learned Hand in the 1945 Alcoa judgment.24 Among other
questions, Judge Learned Hand had to examine whether “Congress chose to
attach liability to the conduct outside the United States of persons not in
allegiance to it.”25 The Judge concluded, on somewhat spurious evidence that “it
is settled law [...] that any state may impose liabilities, even upon persons not
within its allegiance, for conduct outside its borders that has consequences [or
effects] within its borders which the state reprehends.”26

The effects doctrine established in Alcoa initially triggered domestic and
international resistance. As Gavil, Kovacic and Baker explain, foreign authorities
were specifically concerned about criminal prosecution of their nationals under
the Sherman Act, the application of far reaching American discovery rules, the
availability of treble damages and class actions, and the application of the
American Rule regarding recovery of attorney fees.27

Nevertheless, the effects doctrine was subsequently endorsed by other U.S.
courts and also imported by a growing number of foreign courts and authorities,
at least in the area of antitrust or competition law.28 Two important questions

cmt. b (AM. L. INST. 2019).

21. Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804).

22. See 15 U.S.C. §§ 1- 7 (1890).

23. See Am. Banana Co. v. United Fruit Co., 213 U.S. 347, 356 (1909) (emphasis added).

24. United States v. Aluminum Co. of Am., 148 F.2d 416 (2d Cir. 1945).

25. Id. at 443.

26. Id. (emphasis added).

27. See Andrew Gavil, William Kovacic & Jonathan Baker, ANTITRUST LAW IN PERSPECTIVE:

CASES, CONCEPTS, AND PROBLEMS IN COMPETITION POLICY 1031 (2nd ed. 2008) These are all legal

concepts unknown to most foreign jurisdictions. In most countries, antitrust procedures are

administrative in nature and do not entail criminal sanctions. Class actions and treble damages are

uncommon, and discovery is much restricted. Moreover, under the English Rule applicable in most

countries, the prevailing party can recover attorney fees from the non-prevailing party, which is not

the case under the American Rule.

28. For discussion, see Karl M. Meessen, Antitrust Jurisdiction and Customary International

Law, 78 AM. J. INT’L L. 783-810 (1984); James Friedberg, The Convergence of Law in an Era of

Political Integration: The Wood Pulp Case and the Alcoa Effects Doctrine, 52 U. PITT. L. REV.

289-26 (1990-91); Roger P. Alford, The Extraterritorial Application of Antitrust Laws: the United



2023] THE LONG ARM OF THE SEC 9

remain, however. First, whether any effect within U.S. borders is sufficient or
whether the effects have to reach a more substantial level. Second, whether state
practice is sufficiently widespread, consistent, and broad, to create new
customary international law beyond the regulation of anticompetitive behavior.
At least with regard to the general recognition of the effects doctrine, the
Restatement seems to have no doubt. The Comment added to § 401 Categories
of Jurisdiction elaborates as follows:

Both domestic and international law govern jurisdiction. No broad-based
multilateral treaty governing jurisdiction currently exists. Instead,
jurisdiction under international law is primarily regulated by customary
international law, which results from a general and consistent practice of
states followed out of a sense of international legal right or obligation.
[...]”Customary international law permits exercises of prescriptive
jurisdiction where there is a genuine connection between the subject of
the regulation and the state seeking to regulate. [...] The most commonly
recognized bases of jurisdiction that reflect such a genuine connection
are territory, effects, active personality, passive personality, protection,
and universality.29

As long as the legal foundations for reliance on the effects doctrine beyond
the area of antitrust law are less than universally accepted, however,30 any

States and European Community Approaches, 33 VA. J. INT’L L. 1-50 (1992); Jason Coppel, A

Hard Look at the Effects Doctrine of Jurisdiction in Public International Law, 6 L J. INT’L L. 73-90

(1993); J.P Griffin, Extraterritoriality in U.S. and EU Antitrust Enforcement, 67 ANTITRUST L.J.

159-99 (1999). Sufficiently wide acceptance around the globe—at least in the area of antitrust

law—is argued by Anindita Jaiswal. See Anindita Jaiswal, Effects Doctrine in India Versus the US:

Developing & Developed Country Perspectives, 12 MANCHESTER J. INT’L ECON. L. 344-65 (2015).

For the contemporary state of the art, see Florian Wagner-von Papp, Competition Law and

Extraterritoriality, in RESEARCH HANDBOOK ON INTERNATIONAL COMPETITION LAW 21-59 (Ariel

Ezrachi ed., 2012); Brandan Sweeney, International Governance of Competition and the Problem

of Extraterritorial Jurisdiction, in COMPARATIVE COMPETITION LAW 345-84 (John Duns, Arlen

Duke & Brendan Sweeney eds., 2015); Eleanor Fox, Extraterritorial Jurisdiction, Antitrust, and

the EU Intel Case: Implementation, Qualified Effects, and the Third Kind, 42 FORDHAM INT’L L.J.

981-98; Peter Behrens, Unilateral Application of Competition Laws to Transnational Business

Transactions: The Development of the “Effects” Doctrine in the US and the EU, in

EXTRATERRITORIALITY OF EU ECONOMIC LAW: THE APPLICATION OF EU ECONOMIC LAW OUTSIDE

THE TERRITORY OF THE EU 9-27 (Nuno Cunho Rodrigues ed., 2021). 

29. RESTATEMENT (FOURTH) OF THE FOREIGN RELS. L. OF THE U.S. RESTATEMENT § 401 cmt.

a, § 403 (AM. L. INST. 2019), (emphasis added). 

30. According to the Restatement, “[the] United States has long applied the effects doctrine

to economic regulation. [...] Some foreign states have objected to U.S. exercises of prescriptive

jurisdiction based on effects and have responded by enacting statutes blocking foreign regulation.

[...] Some foreign states have also issued diplomatic protests and filed amicus briefs objecting to

U.S. exercises of effects-based jurisdiction.” Id. §409 Reporter’s Note 2 to Jurisdiction Based on

Effects.



10 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

exercise of jurisdiction on this basis has to be conservative. After all, “[if] a state
exercises jurisdiction beyond the limits of international law, the resulting
violation of international law will entail international responsibility.”31

2. Conflict Rules

As long as a country is exercising its jurisdiction on a solid basis, primarily
the territoriality and personality principles but including the effects doctrine, it
need not concern itself with the fact that another country may also have
jurisdiction over the act or actor. If both countries should regulate the matter,
however, a conflict may arise if the regulations should be mutually incompatible.

A good example is provided by the case against Marc Rich.32 Rich was an
American commodity trader operating under the trade name Marc Rich & Co.,
A.G. out of Zug, Switzerland. In 1982, a federal grand jury was investigating the
company for alleged tax evasion and a grand jury subpoena duces tecum was
served on a New York affiliate of the Swiss company for production of business
records relating to crude oil transactions in 1980 and 1981.33 Mr. Rich objected
to the subpoena on the grounds that the Swiss entity was not subject to in
personam jurisdiction of the U.S. court and that Swiss law prohibited the
production of the materials demanded.34 The district court rejected both
arguments and imposed a coercive fine of US$ 50,000 per day on Rich. The U.S.
Court of Appeals Second Circuit affirmed the decision and the U.S. Supreme
Court denied certiorari regardless of the fact that a Swiss court had prohibited
compliance with the subpoena in June 1983. After Rich tried to comply with the
subpoena in contravention of the Swiss court order, Swiss officials seized various
documents responsive to the subpoena and ordered Rich on several occasions not
to comply with the U.S. order.35 When Rich moved to vacate the contempt
judgment, the Government of Switzerland even appeared as amicus curiae on
behalf of Rich, taking the position “that there is a clear conflict between the
public laws of Switzerland and those of the United States, and that efforts to force
compliance with the subpoena despite Swiss law violate Swiss sovereignty and
international comity.”36

31. See id. § 401 cmt. a (emphasis added); see also Rep. of the Int’l L. Comm’n on Its Fifty-

Third Session, U.N. Doc. A/56/10, at 26-20 (2001).

32. In re Marc Rich & Co., , 707 F.2d 663 (1983).

33. Id. at 665.

34. Id.

35. In re Marc Rich & Co., 736 F.2d 864, 866 (1984).

36. Id. The U.S. Court of Appeals explained that “[c]ivil contempt is a coercive sanction, and

thus a person held in civil contempt must be able to comply with the court order at issue. [...]

Individuals unable to comply, because of their own bad faith actions or otherwise, may be subject

to criminal sanctions, but may not be held in civil contempt. The burden of proving ‘plainly and

unmistakably’ that compliance is impossible rests with the contemnor. [...] We face two different

issues in deciding whether Rich should continue to be held in civil contempt: (1) Has Rich proved

that it is no longer in possession or control of documents responsive to the subpoena and thus no



2023] THE LONG ARM OF THE SEC 11

International comity is indeed the relevant conflict rule for the resolution of
competing jurisdictional claims in international law and relations. William Dodge
begins his seminal article on comity in American law with the following words:

International comity is one of the principal foundations of U.S. foreign
relations law. The doctrines of American law that mediate the
relationship between the U.S. legal system and those of other nations are
nearly all manifestations of international comity—from the conflict of
laws to the presumption against extraterritoriality; from the recognition
of foreign judgments to the doctrines limiting adjudicative jurisdiction
in international cases; and from a foreign government’s privilege of
bringing suit in the U.S. courts to the doctrines of foreign sovereign
immunity.37

International comity is not international law, since there is no treaty and no
sufficiently uniform custom defining it. Consequently, Dodge defines it as
follows: “International comity is deference to foreign government actors that is
not required by international law but is incorporated in domestic law.”38

Furthermore, Dodge usefully distinguishes different aspects of comity as follows:
“Deference to foreign lawmakers constitutes “prescriptive comity,” deference to
foreign tribunals is termed adjudicative comity, and deference to foreign
governments as litigants is sovereign party comity.”39 The latter is not at issue
here. For both of the former, the Supreme Court has quite recently reaffirmed the
principle of restraint comity imposes on American authorities.

The first example, Empagran, was about the application of the Sherman and
Clayton Acts to the vitamin cartel.40 Vitamin manufacturers in the U.S. and
abroad had engaged in price fixing with the result that prices for vitamins had
gone up everywhere. Although the price cartel clearly had effects in U.S. markets,
the District Court held that the Sherman Act was not applicable to foreign effects
on foreign customers, i.e. that it was only protecting domestic customers. The
U.S. Court of Appeals for the District of Columbia Circuit reversed and held:

[W]here the anticompetitive conduct has the requisite harm on United
States commerce, FTAIA[41] permits suits by foreign plaintiffs who are

longer able to comply? (2) If Rich still possesses or controls such documents, are Swiss laws or

orders sufficient to excuse noncompliance and thus to serve as the basis for vacating the judgment

of contempt?” Id.

Since Rich could have complied before the documents were seized by the Swiss authorities,

his motions were denied. Id. at 867. In the end, Rich was caught between a rock and a hard place

and ended up being not quite so rich.

37. William S. Dodge, International Comity in American Law, 115 COLUM. L. REV. 2071,

2071-41 (2015).

38. Id. at 2078.

39. Id. (footnotes omitted).

40. F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004).

41. Foreign Trade Antitrust Improvements Act of 1982, 15 U.S.C. § 6a.



12 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

injured solely by that conduct’s effect on foreign commerce. The
anticompetitive conduct itself must violate the Sherman Act and the
conduct’s harmful effect on United States commerce must give rise to ‘a
claim’ by someone, even if not the foreign plaintiff who is before the
court.42

In effect, this would have allowed a number of foreign companies domiciled
in Ecuador, Panama, Australia, Mexico, Belgium, the UK, Indonesia, and Ukraine
to sue an equally foreign company based in Switzerland for damages in the U.S.
The obvious purpose of the action was to make use of the potential availability
of treble damages under U.S. law. The U.S. Supreme Court wisely vacated and
remanded.43 It elaborated as follows:

No one denies that America’s antitrust laws, when applied to foreign
conduct, can interfere with a foreign nation’s ability independently to
regulate its own commercial affairs. But our courts have long held that
application of our antitrust laws to foreign anticompetitive conduct is
nonetheless reasonable, and hence consistent with principles of
prescriptive comity, insofar as they reflect a legislative effort to redress
domestic antitrust injury that foreign anticompetitive conduct has
caused.44

But why is it reasonable to apply those laws to foreign conduct insofar
as that conduct causes independent foreign harm and that foreign harm
alone gives rise to the plaintiff’s claim? Like the former case, application
of those laws creates a serious risk of interference with a foreign nation’s
ability independently to regulate its own commercial affairs. But, unlike
the former case, the justification for that interference seems insubstantial.
[...] Why should American law supplant, for example, Canada’s or Great
Britain’s or Japan’s own determination about how best to protect
Canadian or British or Japanese customers from anticompetitive conduct
engaged in significant part by Canadian or British or Japanese or other
foreign companies?45

Respondents reply that many nations have adopted antitrust laws similar
to our own, to the point where the practical likelihood of interference
with the relevant interests of other nations is minimal. Leaving price
fixing to the side, however, this Court has found to the contrary. [...E]ven
where nations agree about primary  conduct, say, price fixing, they
disagree dramatically about appropriate remedies.46

42. Empagran S.A. v. F. Hoffmann-LaRoche, Ltd., 315 F.3d 338, 341 (2003).

43. F. Hoffmann-LaRoche Ltd. v. Empagran S.A, 542 U.S. at 175.

44. Id. at 165.

45. Id.

46. Id. at 167.



2023] THE LONG ARM OF THE SEC 13

We conclude that principles of prescriptive comity counsel against the
Court of Appeals’ interpretation of the FTAIA. Where foreign
anticompetitive conduct plays a significant role and where foreign injury
is independent of domestic effects, Congress might have hoped that
America’s antitrust laws, so fundamental a component of our own
economic system, would commend themselves to other nations as well.
But, if America’s antitrust policies could not win their own way in the
international marketplace for such ideas, Congress, we must assume,
would not have tried to impose them, in an act of legal imperialism,
through legislative fiat.47

This 2004 decision made it clear that a general effect in U.S. markets is not
enough for the application of U.S. antitrust laws. Rather, a specific injury to U.S.
parties or interests would be required.48 Anything else could easily cross the line
into legal imperialism.

In the second example. a similar result was achieved outside the area of
antitrust when Argentinian individuals sought to bring suit against a German
corporation under the Alien Tort Statute and the Torture Victim Protection Act
of 1991.49 Plaintiffs alleged that Mercedes-Benz Argentina, a subsidiary of the
German Daimler AG, “collaborated with state security forces during Argentina’s
1976–1983 ‘Dirty War’ to kidnap, detain, torture, and kill certain MB Argentina
workers”.50 The Supreme Court, in the interest of “international comity”, affirmed
its decisions in Kiobel (presumption against extraterritorial application of the
Alien Tort Statute)51 and Mohamad v. Palestinian Authority (only natural persons
are subject to liability under the Torture Victim Protection Act)52 and denied
jurisdiction.

47. Id. at 169.

48. Potential gaps in enforcement should be dealt with via international cooperation. See ORG

FOR ECON. COOP. AND DEV. [OECD], Recommendation Concerning International Co-operation

on Competition Investigations and Proceedings, OECD/LEGAL/0408 (Sept. 15, 2014),

https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0408 [https://perma.cc/Y8UK-

KLSA]; Antonio Capobianco & Aranka Nagy, Developments in Inter-national Enforcement Co-

operation in the Competition Field, 7 J. EUR. COMPETITION ON TRADE AND DEV. 566-83 ; U.N.

Conference on Trade and Development, The United Nations Set of Principles and Rules on

Competition: The Set of Multilaterally Agreed Equitable Principles and Rules for the Control of

Restrictive Business Practices, U.N. Doc. TD/RBP/CONF/10/Rev.2 (2000); Rajan Dhanjee,

International Co-operation on Competition Law Enforcement: A Breakthrough?, 44 WORLD

COMPETITION L. AND ECON. REV. 455-86 (2021).

49. Daimler AG v. Bauman, 571 U.S. 117 (2014).

50. Id.

51. Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108, 124 (2013).

52. Mohamad v. Palestinian Authority, 566 U.S. 449, 456 (2012).



14 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

3. Relevant General Principles of Law

As we have seen, the U.S. Supreme Court has consistently held that
extraterritorial application of U.S. law is not a casual matter and requires a clear
expression of Congressional intent when based on statutory law. Alternatively,
extraterritorial application of U.S. law may be reasonable when it addresses
foreign conduct that has significant effects within the U.S.

Any more expansive extraterritorial application of U.S. law would not only
violate U.S. rules of jurisdiction and international comity but also constitute an
abuse of rights, defined as 

“a State exercising a right either in a way which impedes the enjoyment
by other States of their own rights or for an end different from that for
which the right was created, to the injury of another State.”53

The abuse of rights doctrine “is widely considered to be a part of international
law, whether as a general principle of law or as part of customary international
law . . . [and] retains an important role with respect to various international legal
issues. These issues include the resolution of certain types of normative conflicts,
the protection of ‘common spaces’ and ‘matters of common concern’”.54 As
Taylor has outlined, “sovereignty dictates that a State may do what it will”.55 Yet,
at the same time, “a State cannot act in a way which prevents another State from
doing what it wills.”56 Of course, some exceptions will be required but they
cannot be unreasonable or abusive. Sir Robert Jennings, the Whewell Professor
of International Law at Cambridge University and former President of the
International Court of Justice writes in this respect,

[M]any great monopolies and cartels do not operate merely within the
territory of one State. They involve agreements between both United
States and foreign firms, the network of understandings and controls
operating in several different countries. Thus they may be too far flung
for a strictly territorial antitrust law to control effectively. In attempting
to cope with this problem the United States courts have not hesitated to
reach out after such trust arrangements, so that [...] antitrust law has been
given in many respects an extraterritorial application of a most radical
and even novel kind.57

53. Alexandre Kiss, Abuse of Rights, in ENCYCLOPEDIA OF PUBLIC INTERNATIONAL LAW

(2006).

54. Michael Byers, Abuse of Rights: An Old Principle, a New Age, 47 MCGILL L.J. 389, 389

(2001-02); see also DANIELLE IRELAND-PIPER, ACCOUNTABILITY IN EXTRATERRITORIALITY: A

COMPARATIVE AND INTERNATIONAL LAW PERSPECTIVE 39 (2017).

55. G.D.S. Taylor, The Content of the Rule Against Abuse of Rights in International Law, 46

BRIT. Y.B. INT’L L. 323 (1972-1973).

56. Id. at 323.

57. Robert Y. Jennings, Extraterritorial Jurisdiction and the United States Antitrust Laws,

33 BRIT. Y.B. INT’L L. 146, 146-47 (1957).



2023] THE LONG ARM OF THE SEC 15

[T]herefore [...] international law will permit a State to exercise
extraterritorial jurisdiction provided that State’s legitimate interests
(legitimate that is to say by tests accepted in the common practice of
States) are involved; but against this must be set also the legitimate and
reasonable interests of the State whose territory is primarily concerned,
for the extraterritorial exercise of jurisdiction must not be permitted to
extend to the point where the local law is supplanted: where in fact it
becomes an interference by one State in the affairs of another. The
position can be expressed in terms of the doctrine of abuse of rights. A
State has a right to extraterritorial jurisdiction where its legitimate
interests are concerned, but the right may be abused, and it is abused
when it becomes essentially an interference with the exercise of the local
territorial jurisdiction.58

In conclusion, a State may always regulate and adjudicate actions and actors
within its proper territory and enforce its law in these cases. It may also regulate
actions by its own nationals, wherever they may occur, although in adjudicating
and enforcing its laws, it may already have to take into account international
comity to avoid cases like the Marc Rich affair. Regulatory, adjudicative and
enforcement jurisdiction have to be exercised even more restrictively when
merely based on passive personality or effects within the territory. Finally, State
powers are at their minimum and most likely to interfere with the sovereignty of
other states when they are based on the protection or passive personality
principle. U.S. law is generally consistent with these principles since it applies a
presumption against extraterritoriality59 and requires reasonableness in
interpretation of domestic laws that might have extraterritorial application60 and,
in any case, an interpretation that is consistent with international law.61

We will now examine whether the SEC and the CFTC practice in the area of
blockchain and digital currency law is compliant with these rules.

II. EXAMPLES OF SEC AND CFTC DECISIONS AGAINST NON-U.S.
ENTITIES AND NATIONALS

Blockchain technology and cryptocurrencies are affected by a number of
federal laws, even if those were not designed for and do not specifically mention
DLT technology or digital money. Furthermore, there are regulatory agencies like
the SEC and the CFTC issuing rules, opinions and adjudicatory orders within
their respective areas of responsibility, and launching enforcement actions in
court to enforce those rules and opinions.62 In addition, there may be registration

58. Id. at 153.

59. RESTATEMENT (FOURTH) OF THE FOREIGN RELS. L. OF THE U.S. § 404 (AM. L. INST.

2019).

60. Id. § 405.

61. Id. § 406.

62. For detailed analysis, see Frank Emmert, The Regulation of Cryptocurrencies in the

United States of America, EUR. J. L. REFORM (forthcoming summer 2023), https://www.



16 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

or licensing requirements at the State level.63

The Securities Act of 1933 requires that corporations must provide “adequate,
thorough and accurate financial information about securities being offered for
sale to the public.”64 Corporations have to go through a registration process and
publish a prospectus before they can offer securities for sale to the public.65

researchgate.net/publication/358906189_The_Regulation_of_Cryptocurrencies_in_the_United_

States_of_America [https://perma.cc/K9VX-S59Z] [hereinafter Regulation of Cryptocurrencies].

At the Federal level, a multitude of agencies and authorities are currently involved in

oversight of cryptocurrency businesses:

• the Securities and Exchange Commission (SEC) has oversight of securities

issuers and traders;

• the Commodities Futures Trading Commission (CFTC) has oversight of

traders and trading places (exchanges) dealing with commodities futures;

• the Department of Justice is charged with fraud prevention, for example in the

form of Ponzi schemes;

• the Federal Reserve, i.e. the central bank of the U.S., has oversight of banks

and financial institutions to ensure their safety and soundness;

• the Financial Crimes Enforcement Network (FinCEN) at the Treasury

Department is charged with combating money laundering, terrorist financing,

and other large scale financial crimes; cryptocurrency business may have to

obtain licenses as “money services businesses;”

• the Office of Foreign Assets Control (OFAC) at the Treasury Department

administers and enforces trade sanctions against particular countries,

individuals, and companies;

• the Consumer Financial Protection Bureau (CFPB) protects consumers

against unfair treatment by banks, lenders, and other financial companies;

• the Internal Revenue Service (IRS) at the Treasury Department is responsible

for assessment and collection of taxes on income and assets;

• the Federal Trade Commission and the Commerce Department, together with

the Department of Justice, are charged with the enforcement of antitrust

legislation;

• the Environmental Protection Agency (EPA) may yet get involved if the

current expansion of Bitcoin and other energy intensive mining operations in

Texas and other places continues;

• several Self-Regulatory Organizations (SROs) like the Financial Industry

Regulatory Authority (FINRA) or the National Futures Association (NFA) set

industry standards and regulations;

Federal courts oversee the rulemaking by and activities of the Federal agencies. Id. (manuscript at

15-16).

63. An important example is the New York virtual currency regulation, commonly known

as “the BitLicense.” For the full text of the regulation, see N.Y. COMP. CODES R. & REGS., tit. 23,

ch. I, pt. 200 (2023). For analysis, see Regulation of Cryptocurrencies, supra note 62, at 53-58.

64. JAMES MARMERCHANT, SARBANES OXLEY-ACT COMPLETED GUIDE: RISK MANAGEMENT

PERSONNEL, AUDITORS AND SENIOR MANAGERS 4 (2021).

65. The Laws that Govern the Securities Industry, INVESTOR.GOV, https://www.investor.gov/



2023] THE LONG ARM OF THE SEC 17

Securities exchanges can seek registration with the SEC pursuant to Section 6 to
obtain exemption from certain requirements of the Securities Exchange Act.66

While such registration is not mandatory, “[i]t shall be unlawful for any person
to effect transactions in security futures products that are not listed on a national
securities exchange or a national securities association registered pursuant to
section 78o–3(a) of [the Securities Exchange Act].”67 

The mission of the CFTC is “to promote the integrity, resilience, and
vibrancy of the U.S. derivatives markets through sound regulation.”68 Pursuant
to the Commodity Exchange Act of 1936, the CFTC 

 . . . [S]hall have exclusive jurisdiction . . . with respect to accounts,
agreements (including any transaction which is of the character of, or is
commonly known to the trade as, an “option”, “privilege”, “indemnity”,
“bid”, “offer”, “put”, “call”, “advance guaranty”, or “decline guaranty”),
and transactions involving swaps or contracts of sale of a commodity for
future delivery (including significant price discovery contracts), traded
or executed on a contract market [...] or a swap execution facility [...] or

in troduction-invest ing/invest ing-basics/role-sec/ laws-govern-securit ies-industry

[https://perma.cc/EPZ3-TA49].[S]ecurities sold in the U.S. must be registered. The registration

forms companies file provide essential facts while minimizing the burden and expense of

complying with the law. In general, registration forms call for:

• a description of the company’s properties and business;

• a description of the security to be offered for sale;

• information about the management of the company; and

• financial statements certified by independent accountants.

Registration statements and prospectuses become public shortly after filing

with the SEC. [...] Registration statements are subject to examination for

compliance with disclosure requirements. [It is unlawful to sell securities to

the public before the SEC has declared a registration statement ‘effective’.]

Not all offerings of securities must be registered with the Commission. Some

exemptions from the registration requirement include:

• private offerings to a limited number of persons or institutions;

• offerings of limited size;

• intrastate offerings; and

• securities of municipal, state, and federal governments.

Id. For a shorter overview, see generally THOMAS LEE HAZEN, ADVANCED INTRODUCTION TO U.S.

FEDERAL SECURITIES LAW 1-94 (2022). For more detailed analysis, see, e.g. THOMAS LEE HAZEN,

PRINCIPLES OF SECURITIES REGULATION (5th ed. 2017).

66. For a list of registered National Securities Exchanges in the U.S., see National Securities

Exchange, INVESTOR.GOV, https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.

html [https://perma.cc/V8PF-XT35].

67. 15 U.S.C. § 78f(h)(1).

68. About the Commission, COMMODITY FUTURES TRADING COMM’N, https://www.cftc.gov/

About/AboutTheCommission.



18 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

any other board of trade, exchange, or market, and transactions subject
to regulation by the Commission  . . . .69

With few exceptions, the Commodities Exchange Act makes it unlawful to
enter into or execute a transaction “for the purchase or sale of a commodity for
future delivery,” unless the transaction is conducted on a registered exchange and
“evidenced by a record in writing which shows the date, the parties to such
contract and their addresses, the property covered and its price, and the terms of
delivery.”70 The supervisory powers of the CFTC extend even to foreign boards
of trade if they provide access to traders located in the U.S. 

Pursuant to the SEC, most digital currencies qualify as “securities”,
regardless of the characterization as coins, tokens, NFTs, etc. given by the
issuers.71 At the same time, many of the digital currencies are treated as
“commodities” by the CFTC.72 Contracts for the delivery of a commodity at a set
price at some point in time in the future – which is typical of many smart
contracts – fall within the regulatory authority of the CFTC. 

As a consequence, issuers, traders, exchanges, and other participants in the
blockchain space may have a variety of registration and compliance requirements
under U.S. law and companies trading in securities futures—as defined by the
SEC and CFTC—have to comply with both the Securities Exchange Act and the

69. 7 U.S.C. § 2(a)(1)(A).

70. Id. § 6(a); 7 U.S.C. § 6d. For all implementing regulations adopted by the CFTC, see

Commodity Futures Trading Commission, https://www.cftc.gov/LawRegulation/Commodity

ExchangeAct/index.htm.

71. The former SEC Chairman actually testified before the U.S. Senate that “I believe every

ICO I’ve seen is a security.” Virtual Currencies: The Oversight Role of the U.S. Securities and

Exchange Commission and the U.S. Commodity Futures Trading Commission: Hearing Before the

S. Comm. on Banking, Housing, and Urban Affairs, 115th Cong. 5 (2018) (statement of Jay

Clayton, Chairman, SEC), https://www.banking.senate.gov/hearings/virtual-currencies-the-

oversight-role-of-the-us-securities-and-exchange-commission-and-the-us-commodity-futures-

trading-commission [https://perma.cc/59E3-CKGN].

72. In order to assert its authority to regulate cryptocurrencies, the CFTC announced that

“virtual currencies, such as Bitcoin, have been determined to be commodities under the Commodity

Exchange Act.” Bitcoin Basics, COMMODITY FUTURES TRADING COMM’N, https://www.cftc.gov/

sites/default/files/2019-12/oceo_bitcoinbasics0218.pdf [https://perma.cc/28ZG-SZDG].

Commodities are normally “defined broadly to include not only ‘physical commodities,’ such as

cotton or gold, but also currencies or interest rates. The definition also includes ‘all services, rights,

and interests ... in which contracts for future delivery are presently or in the future dealt in.’ 7

U.S.C. § 1a(9). As a general matter, the CFTC has oversight over futures, options, and derivatives

contracts. [It] also has jurisdiction where there is fraud or manipulation involving commodities

trade in interstate commerce.” DANIEL STABILE, KIMBERLY PRIOR & ANDREW HINKES, DIGITAL

ASSETS AND BLOCKCHAIN TECHNOLOGY: US LAW AND REGULATION 68 (2020). For a discussion

of smart contracts as derivatives, see PRIMAVERA DE FILIPPI & AARON WRIGHT, BLOCKCHAIN AND

THE LAW: THE RULE OF CODE 89-104 (2018).



2023] THE LONG ARM OF THE SEC 19

Commodity Exchange Act and be registered with both the SEC and the CFTC.73

Unfortunately, the required filings and registrations are complicated and
expensive and often hard to achieve for technology startups that want to focus
limited resources on the development of a viable product rather than the
engagement of expensive securities lawyers.74

73. In December 2020, the American Bar Association (ABA) published a White Paper on

jurisdictional issues concerning digital assets. AMERICAN BAR ASSOCIATION, DIGITAL AND

DIGITIZED ASSETS: FEDERAL AND STATE JURISDICTIONAL ISSUES (2020), https://www.americanbar.

org/content/dam/aba/administrative/business_law/idpps_whitepaper.pdf. See id. at 47-275 for an

outline of the regulatory conflict between the CFTC and the SEC. Section 5 is specifically

dedicated to “The Need for a Better CFTC and SEC Regulatory Scheme for Digital Assets.” See

id. at 243-75.

74. Prospective issuers of securities generally have to register with the SEC pursuant to

Sections 6 to 8 of the Securities Act, using form S-1, unless they fall under one of the exemptions.

See Securities Act of 1933, 15 U.S.C. §§ 77f-77h. Form S-1 has to be accompanied by a prospectus

that meets the requirements outlined in Sec. 10 of the Act and the Form itself. Extensive annexes

with exhibits pursuant to 17 CFR § 229.601 and financial statements pursuant to 17 CFR Part 210

are also required, which makes the registration so complex and costly. 17 C.F.R. § 229.601; 17

C.F.R.  § § 210.1-01-210.12-02.  Once Form S-1 is filed, the SEC engages in a complex review

procedure, typically involving a back-and-forth of questions and clarifications with the applicant.

Pursuant to Sec. 5, securities can only be issued after the SEC has declared the registration

“effective.”15 U.S.C. § 77e. Once an IPO or ICO is completed, there are various disclosure and

regular filing requirements for as long as the company remains in business. Somewhat different

procedures apply to broker-dealers and exchanges. The threshold for national securities exchanges

pursuant to Section 6 of the Securities Exchange Act of 1934 is particularly high and to date, no

crypto exchange has successfully registered. See 15 U.S.C. §78f.

U.S.-based cryptocurrency exchanges and trading places, as well as issuers or commodities

futures, i.e. smartcontracts that do not execute immediately, have to register with the CFTC as a

Designated Contract Market (DCM), Swap Execution Facility (SEF), Futures Commission

Merchant (FCM), Commodity Pool Operator (CPO), or Commodity Trading Advisor (CTA)

pursuant to the Commodities Exchange Act. A DCM is “[a] board of trade or exchange designated

by the CFTC to trade futures, swaps, and/or options under the [Commodities Exchange Act]. A

contract market can allow both institutional and retail participants and can list for trading contracts

on any commodity.” Futures Glossary, COMMODITY FUTURES TRADING COMM’N, https://www.cftc.

g o v / L e a r n An d P r o t e c t / Ad v i s o r i e s An d Ar t ic les /C FT C Glossa ry/ in d e x . h t m # D

[https://perma.cc/HN9G-PJ3Q]. 

A Swap Execution Facility (SEF) is a trading system or platform [defined] by the Dodd-

Frank Act in which multiple participants have the ability to execute or trade swaps by

accepting bids and offers made by multiple participants in the facility or system,

through any means of interstate commerce. The Dodd-Frank Act imposed different

statutory provisions on SEFs than on designated contract markets. Futures Commission

Merchants (FCMs) are individuals, associations, partnerships, corporations, and trusts

that solicit or accept orders for the purchase or sale of any commodity for future

delivery on or subject to the rules of any exchange and that accept payment from or

extend credit to those whose orders are accepted. A Commodity Pool Operator (CPO)



20 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

Highly restrictive and costly procedures may well be worthwhile if they
actually accomplish significant benefits for investors and markets. Recent
collapses of cryptocurrencies like Do Kwon’s Terra network and Luna coin or the
implosion of the FTX trading platform make it hard to argue with the idea that
blockchain technology and cryptocurrencies need oversight. However, whether
the “oversight” provided by the SEC and the CFTC is making cryptocurrencies
safer is at least questionable. Registration with the SEC secures a high level of
transparency and a certain level of standardization of information provided to the
public. It does not provide any kind of quality seal of approval for the proposed
business model because the SEC does not evaluate a prospectus on the merits,
whether it seems viable and delivers services of value or not.75 As a consequence,
issuers with deep pockets can register almost any business for an IPO or ICO. By
contrast, startups with viable use cases for cryptocurrencies but limited funding
are largely excluded from the capital markets and/or pushed into offshore
jurisdictions.76 

is a person engaged in a business similar to an investment trust or a syndicate and who

solicits or accepts funds, securities, or property for the purpose of trading commodity

futures contracts or commodity options. The CPO either makes trading decisions on

behalf of the pool or engages a Commodity Trading Advisor (CTA) to do so. Managers

at hedge funds or their advisors are often registered with the CFTC as CPOs or CTAs. 

Abe Cherin, Nicole Moran & Simona Mola, The CFTC’s Approach to Virtual Currencies, 7 NAT’L

L. REV. 1, 16 (2020) at note 24. 

75. See STABILE, PRIOR & HINKES, supra note 72, at 191. SEC Commissioner Peirce used

the very apt term “disclosure regulator” for the SEC. See Hester Peirce, Sec. and Exch. Comm’n,

Remarks at the British Blockchain Association’s Conference “Success Through Synergy: Next

generation Leadership for Extraordinary Times” (Mar. 15, 2021) (transcript available at

h t t ps :/ /w w w .sec .gov/n ew s / speech /pe irce -pap e r -p las t ic -pee r -to -peer -0 3 1 5 2 1

[https://perma.cc/EG9L-MSB9].

76. Under SEC Regulation S, offshore offers and sales of securities do not have to be

registered under the Securities Act. 17 C.F.R. §§ 230.901-905. To benefit from this exemption,

many Blockchain businesses exclude customers domiciled in the U.S. from purchasing their

cryptocurrencies. The exclusion has to be comprehensive, however, and include indirect

distributions and resales into the United States. See SEC Release No. 33-7505; 34-39668; File No.

S7-8-97 International Series Release No. 1118; RIN 3235-AG34 Offshore Offers and Sales.

Concrete examples of crypto exchanges and other Blockchain businesses trying to avoid the U.S.

regulatory mess can be found via links on the Ethereum website. ETHEREUM https://ethereum.org/

en/dapps/ [https://perma.cc/7EWU-SAMJ]. For example, dYdX excludes any and all customers

from the United States; Terms of Use, DYDX https://dydx.exchange/terms [https://perma.cc/2QBD-

696S]. Loopring DEX does not serve residents of New York State, while residents of other States

of the U.S. seem to be okay. Terms and Conditions of Loopring, IUBENDA https://www.iubenda.

com/terms-and-conditions/74969935 [https://perma.cc/N8KR-XZ84]. Yet others include terms with

complicated disclaimers that the average customer will not be able to assess appropriately to ensure

compliance. Uniswap, although based in New York City, discloses that

We are not registered with the U.S. Securities and Exchange Commission as a national

securities exchange or in any other capacity. You understand and acknowledge that we



2023] THE LONG ARM OF THE SEC 21

In certain ways, full compliance with the SEC and CFTC may actually be
counterproductive. On the one hand, startup entrepreneurs have to divert scarce
resources to the registration process. This may impede their ability to develop a
viable product. On the other hand, registered securities may create the false
impression among potential investors that the business model has actually been
vetted by the U.S. authorities.

Moreover, registrations with the SEC and CFTC do not provide any
protection against fraud or diversion of funds by overzealous CEOs like Sam
Bankman-Fried of FTX or Do Kwon of Terra. FTX, in particular, was fully
registered with the SEC and CFTC and all other regulatory authorities,77 yet
managed to crash from a valuation around US$ 32 billion into bankruptcy in a
matter of days in November 2022.78 The DOJ and its powers to pursue criminal
activities and punish perpetrators with prison time should work as a deterrent.
Alas, a long list of corporate scandals, from Enron to FTX, demonstrate all too

do not broker trading orders on your behalf nor do we collect or earn fees from your

trades on the Protocol. We also do not facilitate the execution or settlement of your

trades, which occur entirely on the public distributed Ethereum blockchain.

Uniswap Labs Terms of Service, UNISWAP https://uniswap.org/terms-of-service [https://perma.cc/

3F5E-MBJ2].

Whether this will insulate the exchange or its users from SEC interventions remains to be seen.

However, the fact that an exchange like Uniswap, with an average daily trading volume of more

than US$ 200 million and a current market valuation of billions of dollars, does not get an SEC

registration and prefers to operate with a considerable measure of legal uncertainty should be ample

evidence that full compliance is too hard and expensive. Uniswap Protocol, UNISWAP

https://uniswap.org/ [https://perma.cc/YDS7-R4H9].

77. FTX US was registered by FinCEN as a Money Services Business. It had successfully

received a US GAAP financial audit. It continuously relied on the services of a specialized law

firm, Fenwick & West, for its various documentation and compliance assessment and reports. Its

derivatives unit was a Federally regulated and licensed commodity derivatives exchange and

clearinghouse and held three licenses with the CFTC. It was audited annually by Grant Thorton

LLP, and used various outside vendors to conduct annual or even more frequent cyber security tests

and simulations. Internal decision-making and supervisory procedures were audited by Friedman

LLP (SOC I Type II Audits, and a SANS CSC Top 20 audit). System safeguards, market

surveillance and/or financial controls were examined annually by the CFTC. Although this was

already a lot, FTX US also sought and obtained Money Transmitter licenses at the State level from

Alabama, Alaska, Arizona, Arkansas, the District of Columbia, Florida, Georgia, Illinois, Iowa,

Maine, Maryland, Michigan, Mississippi, Missouri, New Hampshire, New Mexico, Oregon,

Pennsylvania, Puerto Rico, South Dakota, Washington, and West Virginia. Source no longer

available due to bankruptcy filing of the exchange (former web address https://help.ftx.us/hc/en-

us/articles/360046877253-Regulation-and-Licensure-Information).

78. See Rise and Fall of Crypto Exchange FTX, REUTERS (Nov. 16, 2022, 9:51 PM EST),

https://www.reuters.com/markets/currencies/rise-fall-crypto-exchange-ftx-2022-11-10/

[https://perma.cc/24HS-M8BB]. See also Nathan Reiff, The Collapse of FTX: What Went Wrong

with Crypto Exchange?, INVESTOPEDIA https://www.investopedia.com/what-went-wrong-with-ftx-

6828447 [https://perma.cc/V5HW-YHGF] (Feb. 27, 2023).



22 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

well that any industry where large amounts of money are at stake, crypto or not,
will attract its share of reckless risk takers and crooks.

As we will see, the SEC in particular has launched many administrative
investigations against issuers of digital currency, as well as sellers, traders,
exchanges, and various other financial service providers in the blockchain space,
because they did not comply with its securities registration and other
requirements. The SEC and the CFTC frequently resort to the courts to obtain
cease-and-desist orders, injunctions, as well as civil penalties against parties
found in violation of the laws. Indeed, the SEC increasingly sees itself as “the
primary cryptocurrency cop”79 for the entire digital currency market and,
effectively, the entire world of cryptobusiness, regardless of national frontiers and
jurisdictions. It is one thing if the U.S. wants to have procedural rather than
substantive oversight of these markets. However, it is quite another if the U.S.
imposes this procedural oversight on the rest of the world by way of legal
imperialism.

The SEC maintains a comprehensive database of “Crypto Assets and Cyber
Enforcement Actions” on its website.80 The CFTC does not single out
cryptocurrency-related cases, but these cases can be easily identified among the
“enforcement actions” on its website.81 The Department of Justice (DoJ) provides
“sample cases” online for its “crypto enforcement” activity “prosecuting fraud
and market manipulation involving cryptocurrency.”82

The types of cryptocurrency-related enforcement actions can be categorized
as follows:

• unregistered offering and sale of crypto assets

79. Mark Bini & Joanna Howe, Here’s Why the SEC Will Likely Be the Primary

Cryptocurrency Cop, BLOOMBERG L. (Oct. 17, 2022, 4:00 AM), https://www.bloomberglaw.com/

bloomberglawnews/exp/eyJjdHh0IjoiQlVOVyIsImlkIjoiMDAwMDAxODMtZDZiMS1kMGM

yLWEzOWItZmVmZDZmMjgwMDAxIiwic2lnIjoiUUZpc09vZE5idHl4bng2dVZMalpwMUV

zZUtFPSIsInRpbWUiOiIxNjY2MDA5OTQzIiwidXVpZCI6InJHdmE2bHZaYXNxaGtMSW5t

L0l2OGc9PTlCVHVjOFFUNVNxT2hvMXZXSkV2MEE9PSIsInYiOiIxIn0=?bwid=00000183-

d6b1-d0c2-a39b-fefd6f280001&cti=LSCH&emc=bbunw_nl%3A34&et=NEWSLETTER&isAlert=

false&item=headline&qid=7368701&region=digest&source=newsletter&uc=1320043742&udv

Type=Alert&usertype=External [https://perma.cc/EQ88-PZJD]. In this context, it is also of interest

that there is currently a bipartisan bill pending in the U.S. Senate seeking to turn the CFTC into the

primary cryptocurrency regulator. See Nikhilesh De, CFTC Would Become Primary Crypto

Regulator Under New Senate Committee Plan, COINDESK https://www.coindesk.com/policy/2022/

08/03/cftc-would-become-primary-crypto-regulator-under-new-senate-committee-plan/

[https://perma.cc/6CRA-NMH5] (Aug. 17, 2022, 12:46 PM EDT).

80. Crypto Assets and Cyber Enforcement Actions, SEC, https://www.sec.gov/spotlight/

cybersecurity-enforcement-actions [https://perma.cc/VX7Z-XM9U].

81. Enforcement Actions, CFTC, https://www.cftc.gov/LawRegulation/EnforcementActions/

index.htm [https://perma.cc/W7YY-T38Z].

82. Crypto Enforcement, U.S. DEP’T OF JUST., https://www.justice.gov/criminal-fraud/crypto-

enforcement [https://perma.cc/9WA7-TFVA].



2023] THE LONG ARM OF THE SEC 23

• unlicensed trading and exchange activities
• false or misleading statements in registration or other disclosure

statements
• pump and dump schemes related to crypto assets
• insider trading related to crypto listings
• other types of violations of securities laws

A significant portion of the SEC, CFTC and DoJ enforcement actions are
directed at foreign nationals and/or companies with their place of incorporation
outside of the U.S. In a majority of these international cases, there is a sufficient
link to the U.S. to justify an exercise of U.S. jurisdiction, however, not in all of
them. This will be illustrated with a number of examples.

1. SEC v. Rivetz Corp, Rivetz International SEZC, and Steven Sprague

Pursuant to the civil complaint filed on 8 September 2021 in the U.S. District
Court, District of Massachusetts,83 defendants offered and sold digital tokens
called “RvT” to more than 7,000 investors from around the world between June
and September 2017 and took in some $18 million. About 30% of the investors
were located in the U.S. The tokens were marketed as an investment opportunity
and supposed to appreciate rapidly in value. However, neither the defendants, nor
the tokens, were registered with the SEC and the investors were not provided with
the disclosures required by U.S. federal securities laws.84 Moreover, “Rivetz did
not have an operational product and the RvT token had no use.”85

For the SEC, a case like this is a classic offering or sale of an unregistered
security. Ever since the famous Supreme Court decision in Howey,86 “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”87 qualifies as an investment contract, and therefore a security.
Under this definition, any issue or sale of digital money that is expected to
increase in value is an issue of securities.

The problem in Rivetz was the fact that the RvT tokens were issued by a
Cayman Island corporation, Rivetz Int’l.88 The SEC, however, claimed
jurisdiction over the case because the owner of Rivetz and Rivetz Int’l, Steven
Sprague, was a resident of Richmond, Massachusetts, and—according to the SEC
complaint—“Rivetz’s principal place of business was Sprague’s home.”89 The

83. Complaint, SEC v. Rivetz Corp.,  No. 3:21-CV-30092 (D. Mass. Sept. 8, 2021),

https://www.sec.gov/litigation/complaints/2021/comp25198.pdf [https://perma.cc/B25Q-CNH6]

[hereinafter SEC Complaint]. 

84. Id. ¶ 1.

85. Id. ¶ 3.

86. SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

87. Id. at 298-299.

88. SEC Complaint, supra note 83, ¶ 2.

89. Id. ¶ 14.



24 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

reader might ask why the owner of a foreign limited liability company would be
responsible for the actions of the corporate entity. However, both the Securities
Act of 1933 and the Securities Exchange Act of 1934 provide for controlling
person liability.90 Insofar, the SEC action stands on solid ground.

2. CFTC v. Adam Todd and Digitex Futures and Similar Cases

The complaint recently brought by the CFTC in the U.S. District Court for
the Southern District of Florida has already less of a connection to the United
States.91 The CFTC alleges that defendants violated the Commodity Exchange
Act (CEA)92 and several CFTC Regulations93 promulgated pursuant to the CEA.
Digitex was active from May 2020 to May 2022. The owner, Adam Todd, a
citizen of the United Kingdom,94 incorporated a number of entities, including
Digitex Ltd in the Republic of the Seychelles, Digitex Software Ltd in Ireland,
and Blockster Holdings Ltd in Gibraltar. Todd and Blockster Holdings then
applied to form Digitex LLC in St. Vincent & the Grenadines. Operating under
the trade name Digitex Futures, defendants built and operated a digital asset
derivatives trading platform. According to the CFTC complaint,

2. The Exchange operated from no later than July 31, 2020, the date of
its ‘launch,’ through at least May 2022 [and] accepted customer funds as
margin and matched customer orders for digital asset derivatives such as
bitcoin futures contracts and ether futures contracts. In connection with
its offering of digital asset futures contracts, Digitex Futures allowed
users, including customers located in the United States, to trade with
leverage of up to 100 to 1.

3. Through the operation of the Exchange, Digitex Futures became
subject to the requirements under Section 4 of the Act, 7 U.S.C. § 6, to
register with the Commission as a designated contract market (“DCM”)
or foreign board of trade (“FBOT”), as well as the requirement under
Section 4d of the Act, 7 U.S.C. § 6d, to register as a futures commission
merchant (“FCM”). Digitex Futures and Todd have never been registered
with the Commission in any capacity and therefore violated 7 U.S.C. §§
6 and 6d.

90. Securities Act of 1933, 15 U.S.C. §77o; Securities Exchange Act of 1934, 15 U.S.C. §78t.

91. Complaint, CFTC v. Todd, No. 1:22-CV-23174 (S.D. Fla. Sept. 30, 2022) [hereinafter

Complaint]. 

92. Id. 7 U.S.C. §§ 1-26.

93. 17 C.F.R. §§ 1.1-190.19 (2021).

94. Although the citizenship information is not included in the complaint filed by the CFTC,

it was obtained from the Companies Registration Office. COMPANIES REGISTRATION OFFICE,

Digitex Software Limited: B10 Change in DIRS/SEC (12605555) (Mar. 20, 2018), https://www.

cro.ie/en-ie/ [https://perma.cc/TX3Y-KN8Z] (general website located here; this specific source is

located behind a paywall).



2023] THE LONG ARM OF THE SEC 25

4. Because Digitex Futures also met the statutory definition of an FCM,
Regulation 42.2, 17 C.F.R. § 42.2 (2021), required it to comply with
applicable provisions of the Bank Secrecy Act (“BSA”), including
requirements to implement effective know-your-customer (“KYC”)
procedures and a customer information program (“CIP”). However,
Digitex Futures did not have effective KYC procedures at any time nor
did it implement an effective CIP, thus violating 17 C.F.R. § 42.2.95 

Todd also created a proprietary digital currency, the DGTX token, which was
sold to investors and traded on secondary exchanges. Pursuant to the CFTC, Todd
then engaged in a series of transactions “expected to lose money rather than make
money [...] with the intent to artificially inflate (or ‘pump’) the price of DGTX.
[...This] attempted manipulation of DGTX violated Section 6(c)(1), 6(c)(3), and
9(a)(2) of the Act, 7 U.S.C. §§ 9(1), 9(3), and 13(a)(2), and Regulations
180.1(a)(1) and 180.2, 17 C.F.R. §§ 180.1(a)(1), 180.2 (2021).”96

Digitex was owned by a British subject, was incorporated outside of the U.S.,
and claimed that it was blocking U.S. IP addresses and “asking users to confirm
... that they are not based in the U.S.”97 Nevertheless, at least some activity was
operated out of an office in Miami, Florida, where Todd also maintained a
residence. Because of the Florida connection, once again, the CFTC action stood
on solid legal ground.

Similar cases where foreign nationals were using foreign registered
companies for transactions that were not registered with U.S. authorities but had
some links to the U.S. include SEC v. Okhotnikov et al.98 Vladimir Okhotnikov

95. See Complaint, supra note 91, ¶¶ 2-4; see also ADAM TODD, DIGITEX: A COMMISSION-

FREE, TRUSTLESS FUTURES EXCHANGE FOR TRADING DIGITAL CURRENCY PRICES 18 (2017),

https://whitepaper.io/document/425/digitex-futures-whitepaper [https://perma.cc/E8KL-FVZ7].

96. Id. ¶ 7.

97. See Helen Partz, Crypto Exchange Digitex Removes KYC to Protect User Data,

COINTELEGRAPH (Mar. 4, 2020), https://cointelegraph.com/news/crypto-exchange-digitex-removes-

kyc-to-protect-user-data [https://perma.cc/T6BJ-YF84].

Todd argued at the time that “[f]orcing all of our customers throughout the world to prove

they’re not American is unreasonable”. He said that “[w]e all know the real reason for KYC. The

real reason for KYC is that Big Brother wants to know what everybody’s doing all the time. He

wants to know how much you’ve got and what you’re doing with it. I don’t believe they have the

right to do that to everybody in the world.” According to Todd, 

There’s two trillion dollars worth of fiat currency laundered every year which is 10x the

entire market cap of every crypto currency combined. Any money laundering that is

going on with crypto is a tiny fraction of a percent of what is going on in fiat. Therefore

by the same logic any business that takes cash without fully identifying their customer

is also funding terrorism.

Id.

98. Press Release, SEC, SEC Charges Eleven Individuals in $300 Million Crypto Pyramid

Scheme (Aug. 1, 2022), Securities and Exchange Commission, https://www.sec.gov/news/press-

release/2022-134 [hereinafter Press Release].



26 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

and his partners created Forsage.io, “a website that allowed millions of retail
investors in the United States and elsewhere to enter into transactions via smart
contracts created by the Founders that operated on the Ethereum, Tron, and
Binance blockchains.”99 Although Forsage collected more than US$ 300 million
from its users, the SEC alleges that it never delivered any service and, instead,
used the money from early investors to recruit more investors in a classic pyramid
or Ponzi scheme. Although none of the owners or creators were U.S. citizens or
residents,100 and Forsage was neither incorporated nor operated any offices or
installations in the U.S., the SEC’s exercise of jurisdiction was lawful, both under
U.S. and international law. First, the effects of the fraudulent and unregistered
offer and sale of securities in U.S. markets was substantial. Second, Forsage
recruited a number of “promoters” and “crypto crusaders” in the U.S. and
rewarded them with commissions for bringing in new investors and helping with
sales of unregistered securities in the U.S.101 

The criminal indictment brought by the DoJ against Satish Kurjibhai
Kumbhani (“Vindee”) for conspiracy to commit wire fraud, operation of an
unlicensed money transmitting business, and conspiracy to commit money
laundering, among others, is based on similar premises.102 The organization
created by Vindee, BitConnect, was unincorporated and the owner himself was
based in India. Nevertheless, the DoJ enforcement action was compatible with
U.S. and international law. First, BitConnect sold unregistered securities in the
form of BitConnect Coin or BCC for the equivalent of some US$ 2.4 billion to
investors around the world, including many in the U.S.103 Thus, it had substantial
effects on U.S. markets. Second, Kumbhani had entered into a promotional
arrangement with residents in the U.S.104

Another example is the cryptocurrency pump-and-dump scheme operated by
Arbitrade and Cryptobontix. Although the companies were incorporated in
Bermuda and Canada, respectively, and the owner/operator was Canadian,
substantial sales of the Dignity or DIG coin were made to U.S. investors, and a
number of U.S. residents participated in the promotion of the scheme.105

99. Complaint, SEC v. Okhotnikov, No. 1:22-CV-03978 (N.D. Ill. Aug. 1, 2022), at 1-2

[hereinafter Okhotnikov Complaint].

100. Okhotnikov himself was a resident of Tbilisi, Georgia. Other partners were based in Bali,

Indonesia, as well as Moscow, Russia. See Press Release, supra note 98.

101. Okhotnikov Complaint, supra note 102, ¶¶ 1-2.

102. Grand Jury Indictment, United States v. Kumbhani, No. 3:22-CR-00395 (S.D. Cal. Feb.

25, 2022) [hereinafter Indictment].

103. At its peak, BitConnect reached a market capitalization of US$ 4.3 billion. Id. According

to the SEC, Kumbhani and his co-conspirators ultimately defrauded investors out of some US$ 2.4

billion. Id. ¶¶ 19, 26, 60.

104. Id. ¶¶ 5-7.

105. See Complaint, SEC v. Arbitrade Ltd., No. 1:22-CV-23171 (S.D. Fla. Sept. 30, 2022).

For another similar case brought by the DoJ, see Complaint, United States v. Le Ahn Tuan, No.

2:22-CR-00273 (C.D. Cal. Sept. 30, 2022) (regarding the Baller Ape Club NFT investment program

rug pull). For discussion, see Ian McGinley, Wire Fraud: The Most Powerful Law in Crypto Right



2023] THE LONG ARM OF THE SEC 27

If the SEC, CFTC and other U.S. authorities had stuck to these kinds of cases,
with genuine links to U.S. markets and territorial jurisdiction, this Article would
never have been written. But they didn’t.

3. Barron v. Helbiz

Several buyers of HelbizCoin attempted to bring a class action in the United
States District Court, S.D. New York, against foreign and American parties after
the value of the coin collapsed. District Judge Stanton wisely dismissed the case.
The Judge found that the coin was created under the laws of Singapore and that
“any purchases in the United States or by U.S. residents” during the ICO were
specifically prohibited.106 Nevertheless, plaintiffs argued that “[d]efendants sent
out deceptive communications from New York-based addresses and social media
accounts, held marketing events in New York to (fraudulently) promote their
coin, executed transactions that required New York-based Ethernodes to function,
and perpetrated other aspects of their conspiracy from within New York . . .
[creating a] sufficient nexus to New York.”107 The Judge refuted these arguments
by sticking with the U.S. Supreme Court precedent Morrison v. National
Australia Bank, Ltd.108 In the interpretation of Judge Stanton, Morrison held that
“the proper test was ‘transactional’: not where the deceptive action took place, but
whether the purchases were made in the United States or on a domestic
exchange”.109 Since the coin had not been listed on a U.S. exchange, had no
facility for purchase within the U.S., and had no domestic off-exchange
purchases, the case did not meet the Morrison test.110 

Plaintiffs further argued that jurisdiction of U.S. courts could be established
by the fact that the U.S. is home to the largest number of Ethernodes, i.e. the
servers on which the Ethereum blockchain runs, more than twice as many as any
other country.111 Pursuant to this logic, the U.S. could indeed arrogate to itself the
imperial power of regulating anything and everything that ever happens on what
is arguably the most important blockchain in the world. Once again, Judge
Stanton wisely chose judicial restraint. The Judge held that 

[although] plaintiffs say, ‘the sale of that virtual currency was executed
on a network of digital nodes that have more nexus to the U.S. than to
any other country’ [...] all that machinery for generating, administering,
and delivering the [digital coin] could be located in Kansas, Germany or
Brazil without affecting the location of the offer and acceptance of the

Now, REUTERS (Aug. 23, 2022, 11:38 AM EDT), https://www.reuters.com/legal/legalindustry/wire-

fraud-most-powerful-law-crypto-right-now-2022-08-23/ [https://perma.cc/2FLD-QGSY].

106. Barron v. Helbiz, Inc., No. 1:20-CV-04703, 2021 WL 229609 (S.D.N.Y. Oct. 4, 2021).

107. Id. at *4.

108. Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247 (2010); see also infra note 132. 

109. Barron, 2021 WL 229609, at *4.

110. Id. at *5.

111. Id. at *5-6.



28 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

purchase. Morrison dealt with the location of the change in the legal
relationship between persons, not the electronic operations of creation,
transport and delivery of the product. Mr. Khanchandani did not
purchase his bitcoins in Kansas. He purchased them in the United Arab
Emirates, where he accepted the offer and agreed to the contract of
purchase. Mr. Szklarek purchased his in Great Britain, not Kansas.112

Accordingly, the Judge dismissed the claims and denied the plaintiffs access
to U.S. courts where the latter should not exercise jurisdiction. However, the
plaintiffs appealed, and the U.S. Court of Appeals for the Second Circuit was far
less interested in judicial restraint.113 Since plaintiffs had meanwhile produced
“factual allegations regarding the citizenship of plaintiff Ryan Barron (a
purported U.S. citizen who purchased HelbizCoin domestically), to clarify the
domesticity of the ICO and purchases of HelbizCoin, and to make a separate
federal securities claim under Section 10(b) [of the Securities Exchange Act]”,114

the Second Circuit vacated Judge Stanton’s judgment and remanded “for further
proceedings consistent with this order.”115

The reader should appreciate how far the Second Circuit is straying beyond
the requirement of a direct, substantial, and reasonably foreseeable effect in U.S.
markets. By now, a single U.S. resident who manages to buy cryptocurrency in
circumvention of the rules set by the issuer is enough to justify extraterritorial
application of U.S. law! If you listen carefully, you can actually hear Justice
Scalia, the author of Morrison, spinning in his grave. More on that below.

4. SEC v. Telegram

Telegram is an instant messaging service offering free end-to-end encrypted
chats and video calling. The company was created in 2013 and is based in Dubai.
As of November 2022, Telegram had 700 million active users. To fund its
operations and further growth, Telegram announced in 2018 that it would create
digital assets called “Grams” and run on a proprietary blockchain, the “Telegram
Open Network” (TON). In February and March 2018, Telegram filed two Form
D submissions with the SEC declaring that it was raising US$ 1.7 billion from
accredited investors. While Telegram accepted that Grams would be securities,
it “claimed that their sale was exempt from the registration requirement of
Section 5 of the Securities Act [...], 15 U.S.C. § 77e, pursuant to Rule 506(c) of
Regulation D issued under the Act. See 17 C.F.R. § 230.506(c).”116 Before
Telegram was able to deliver the Grams to its investors, the SEC filed a court
action on 11 October 2019 and sought an emergency order seeking expedited
U.S.-style discovery for a “‘complete and updated list of all individuals and

112. Id. at 6.

113. Barron v. Helbiz, Inc., 2021 WL 4519887 (2nd Cir. Oct. 4, 2021).

114. Id. at 3.

115. Id.

116. SEC v. Telegram Grp., No. 19 Civ. 9439, 2020 WL 61528, at *2 (S.D.N.Y. Jan. 3, 2020).



2023] THE LONG ARM OF THE SEC 29

entities that purchased Grams’ and ‘financial records reflecting the current
amount of the funds, and the use to which any funds were put.’”117 Telegram
objected to the scope of the information demanded and provided only partial bank
records with deposits but not expenditures.

The SEC claimed and the court agreed that Telegram has the burden of proof
to establish that it is entitled to an exemption under Regulation D.118 The SEC
claimed and the court agreed that “[w]ithout fully un-redacted bank records [...],
the SEC (and the Court) cannot fully understand (1) who made payments under
which purchase agreement, (2) whether some of those payments were from
entities who were acting as statutory underwriters, and (3) whether Telegram
made any payments to such underwriters.”119 Although Telegram had already
conceded that Grams are securities, the SEC argued that it “must establish that
such instruments are ‘investment contracts’ under [Howey]” and that “[h]ow
much money Telegram has spent to date, and in what manner, to develop the
TON Blockchain and related applications, and to integrate them into Telegram
Messenger, is highly relevant evidence to whether the investors had a reasonable
expectation of profits through the ‘efforts of others.’”120 The District Court
granted the SEC’s request for a preliminary injunction on 1 March 2020. The
SEC then asked the District Court to enjoin Telegram from distributing the Grams
previously purchased by “175 sophisticated entities and high net-worth
individuals in exchange for a promise to deliver 2.9 billion Grams.”121 While
Telegram argued that its distribution of Grams to the investors would fall under
the exemption of Regulation D, the SEC saw the initial purchasers as
underwriters, many of whom would proceed to sell the Grams “in the public
market, whose participants would have been deprived of the information that a
registration statement would reveal.”122 The District Court agreed with the SEC
that it was likely that the investors would resell the Grams and, therefore, the
entire transaction would be “an offering of securities under the Howey test to
which no exemption applies.”123 Therefore, the District Court, on 24 March 2020,
granted a preliminary injunction “prohibiting the delivery of Grams to the Initial
Purchasers.”124

In response, Telegram requested clarifications and argued that the injunction
was overbroad and should be limited to purchase agreements with U.S.-based
investors. Telegram argued that it is a non-U.S. entity, and the majority of its
purchasers are non-U.S. parties who entered into agreements with Telegram

117. Id.

118. Id. at 3. “Registration exemptions are construed strictly to promote full disclosure of

information for the protection of the investing public.” Id. (citing SEC v. Cavanaugh, 455 F.3d 105,

115 (2d Cir. 2006)).

119. Telegram Grp., 2020 WL 61528, at *4.

120. Id.

121. SEC v. Telegram Grp. Inc., 448 F. Supp. 3d 352, 358 (S.D.N.Y. 2020).

122. Id.

123. Id. at 359.

124. Id. at 382. 



30 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

outside of the U.S. and containing foreign choice-of-law provisions. The request
was denied.125

In the end, Telegram was unable to deliver Grams to any purchasers, had to
return more than US$ 1.2 billion to investors, and pay a fine of US$ 18.5 million
to the SEC.126 The SEC celebrated its victory declaring “[o]ur emergency action
protected retail investors from Telegram’s attempt to flood the markets with
securities sold in an unregistered offering without providing full disclosures
concerning their project”.127

Of course, the outcome could be interpreted quite differently, namely that the
SEC prevented a foreign company from doing business in foreign markets
according to foreign rules with willing and sophisticated foreign parties to
prevent that at least some of the digital assets would eventually end up with less
sophisticated but still willing U.S. parties.

III. JUSTIFICATION OF SEC LONG-ARM JURISDICTION

The SEC, and to some extent the CFTC, are by now regularly exercising
extraterritorial or long-arm jurisdiction in the application of U.S. securities laws.
In light of the questionable scope of the effects doctrine and its focus on antitrust
law, the practice of the SEC and CFTC requires further examination and
justification.

In the context of securities law, the U.S. Court of Appeals Second Circuit
took a significant step in 1968 in Schoenbaum v. Firstbrook when it held that the
Securities Exchange Act of 1934 has extraterritorial application.128 However, the
facts were highly specific. The Court held that: 

Section 30(a) [of the Securities Exchange Act] empowers the SEC to
regulate all brokers and dealers who use the mails or interstate
commerce, for the purpose of effecting a transaction in American
securities on exchanges outside the United States... It was intended to
prevent evasion of the Act through transactions on foreign exchanges.129

Moreover, Schoenbaum was overruled by the U.S. Supreme Court in 2010.130

A large Australian bank was accused of securities fraud in relation to the
acquisition of a Florida mortgage servicing business. International shareholders
brought suit in the U.S. Justice Scalia wrote on behalf of the majority:

125. SEC v. Telegram Grp. Inc., No. 19-CV-9439, 2020 WL 1547383 (S.D.N.Y. Apr. 1,

2020).

126. See Press Release, SEC, Telegram to Return $1.2 Billion to Investors and Pay $18.5

Million Penalty to Settle SEC Charges (June 26, 2020), https://www.sec.gov/news/press-

release/2020-146 [https://perma.cc/9DF6-SLGD]. 

127. Id.

128. Schoenbaum v. Firstbrook, 405 F.2d 200, 207 (1968).

129. Id. (emphasis added).

130. Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247 (2010).



2023] THE LONG ARM OF THE SEC 31

It is a “longstanding principle of American law ‘that legislation of
Congress, unless a contrary intent appears, is meant to apply only within
the territorial jurisdiction of the United States.’” . . . This principle
represents a canon of construction, or a presumption about a statute’s
meaning, rather than a limit upon Congress’s power to legislate . . . . It
rests on the perception that Congress ordinarily legislates with respect to
domestic, not foreign, matters. . . . Thus, ‘unless there is the affirmative
intention of the Congress clearly expressed’ to give a statute
extraterritorial effect, ‘we must presume it is primarily concerned with
domestic conditions.’ . . . The canon or presumption applies regardless
of whether there is a risk of conflict between the American statute and a
foreign law . . . . When a statute gives no clear indication of an
extraterritorial application, it has none.

Despite this principle of interpretation, long and often recited in our
opinions, the Second Circuit believed that, because the Exchange Act is
silent as to the extraterritorial application of § 10(b), it was left to the
court to ‘discern’ whether Congress would have wanted the statute to
apply. . . . This disregard of the presumption against extraterritoriality did
not originate with the Court of Appeals panel in this case. It has been
repeated over many decades by various courts of appeals in determining
the application of the Exchange Act, and § 10(b) in particular, to
fraudulent schemes that involve conduct and effects abroad. That has
produced a collection of tests for divining what Congress would have
wanted, complex in formulation and unpredictable in application . . . . 

[T]he Second Circuit . . . excised the presumption against
extraterritoriality from the jurisprudence of § 10(b) and replaced it with
the inquiry whether it would be reasonable (and hence what Congress
would have wanted) to apply the statute to a given situation. As long as
there was prescriptive jurisdiction to regulate, the Second Circuit
explained, whether to apply § 10(b) even to ‘predominantly foreign’
transactions became a matter of whether a court thought Congress
‘wished the precious resources of United States courts and law
enforcement agencies to be devoted to them rather than leave the
problem to foreign countries.’

The Second Circuit had thus established that application of § 10(b) could
be premised upon either some effect on American securities markets or
investors (Schoenbaum) or significant conduct in the United States
(Leasco). It later formalized these two applications into (1) an ‘effects
test,’ ‘whether the wrongful conduct had a substantial effect in the United
States or upon United States citizens,’ and (2) a ‘conduct test,’ ‘whether
the wrongful conduct occurred in the United States.’ [...]

Commentators have criticized the unpredictable and inconsistent



32 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

application of § 10(b) to transnational cases.131

Justice Scalia continues to discuss arguments presented in favor of at least
some extraterritorial application of the Securities Exchange Act and concludes:

The general reference to foreign commerce in the definition of
‘interstate commerce’ [in § 10(b)] does not defeat the presumption
against extraterritoriality. . .The fleeting reference [in Congress’
description of the purposes of the Securities Exchange Act] to the
dissemination and quotation abroad of the prices of securities traded in
domestic exchanges and markets cannot overcome the presumption
against extraterritoriality. . . [P]ossible interpretations of statutory
language [such as § 30(b) of the Act] do not override the presumption
against extraterritoriality.132

With these statements, Justice Scalia, on behalf of the U.S. Supreme Court,
was making a forceful statement against the extraterritorial application of the
Securities Exchange Act and, in fact, any U.S. statutes. He continues, “[T]he
presumption against extraterritorial application would be a craven watchdog
indeed if it retreated to its kennel whenever some domestic activity is involved
in the case.”133

Before and after Morrison, many other courts in the U.S. have taken a
similarly conservative approach to the effects doctrine.134 Even in the area of
antitrust law, the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA)
restricted the application of U.S. antitrust laws to cases where a “direct,
substantial, and reasonably foreseeable effect” of the foreign actions on U.S.
commerce could be demonstrated.135 The presumption against extraterritoriality

131. Id. at 255-60 (emphasis added) (citing Choi & Silberman, Transnational Litigation and

Global Securities Class–Action Lawsuits, 2009 WIS. L. REV. 465, 467-68; Chang, Multinational

Enforcement of U.S. Securities Laws: The Need for the Clear and Restrained Scope of

Extraterritorial Subject-Matter Jurisdiction, 9 FORD. J. CORP. & FIN. L. 89, 106-08, 115-16 (2004);

Langevoort, Schoenbaum Revisited: Limiting the Scope of Antifraud Protection in an

Internationalized Securities Marketplace, 55 LAW & CONTEMP. PROBS. 241, 244-48 (1992); Sachs,

The International Reach of Rule 10b-5: The Myth of Congressional Silence, 28 COLUM. J.

TRANSNAT'L L. 677 (1990); Note, Let There Be Fraud (Abroad): A Proposal for A New U.S.

Jurisprudence with Regard to the Extraterritorial Application of the Anti–Fraud Provisions of the

1933 and 1934 Securities Acts, 28 LAW & POL'Y INT'L BUS. 477, 492-93 (1997)).

132. Morrison, 561 U.S. at 263-64. 

133. Id. at 266.

134. See Jonathon Turley, “When in Rome”: Multinational Misconduct and the Presumption

Against Extraterritoriality, 84 Nw. U. L. REV. 598, 608-34 (1990) (discussing older cases).

135. 15 U.S.C. § 6a. Gavil, Kovacic and Baker summarize that 

the jurisdictional threshold for domestic antitrust violations is relatively minimal – all

that need be alleged is that the challenged conduct affected interstate commerce.

Although cases like Alcoa were perceived as expanding U.S. antitrust jurisdiction

through the effects doctrine, they imposed a more elevated jurisdictional standard on



2023] THE LONG ARM OF THE SEC 33

was reaffirmed as recently as 2016 in RJR Nabisco.136

For the area of securities law, the SEC claims that the adoption of the Dodd-
Frank Act137 overruled the case law-based presumption against extraterritoriality
and provides a jurisdictional basis for the application of the Securities Act of
1933138 and the Securities Exchange Act of 1934139 to foreign parties selling
securities to U.S. persons.140 Presumably, this is also the stance of the CFTC with
regard to the Commodity Exchange Act of 1936141 and trade in commodities
futures involving U.S. persons.142

Dodd-Frank amended the Securities Act to state:

(c) Extraterritorial Jurisdiction

The district courts of the United States [...] shall have jurisdiction of an
action or proceeding brought or instituted by the Commission or the United
States alleging a violation of section 77q(a) of this title involving – 

(1) conduct within the United States that constitutes significant steps in
furtherance of the violation, even if the securities transaction occurs
outside the United States and involves only foreign investors; or

(2) conduct occurring outside the United States that has a foreseeable
substantial effect within the United States.143

Congress inserted a parallel provision into the Securities Exchange Act,144 and the

foreign conduct than did the domestic cases like McLain [McLain v. Real Estate Bd. of

New Orleans, Inc., 444 U.S. 232 (1980)]. As Hartford Fire [Hartford Fire Insurance

Co. v. California, 509 U.S. 764 (1993)] formulated the standard, in order to assert U.S.

antitrust jurisdiction over foreign conduct, that conduct must ‘produce some substantial

effect in the United States.

ANDREW GAVIL, WILLIAM KOVACIC & JONATHAN BAKER, ANTITRUST LAW IN PERSPECTIVE:

CASES, CONCEPTS AND PROBLEMS IN COMPETITION POLICY 1038 (2nd ed. 2008).

136. RJR Nabisco, Inc. v. Eur. Cmty., 579 U.S. 325 (2016).

137. Pub. L. No. 111-203 (2010). 

138. 15 U.S.C. § 77a.

139. 15 U.S.C. § 78a.

140. See SEC. AND EXCH. COMM’N, STUDY ON THE CROSS-BORDER SCOPE OF THE PRIVATE

RIGHT OF ACTION UNDER SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 (2012)

https://www.sec.gov/files/929y-study-cross-border-private-rights.pdf [https://perma.cc/B4CT-

EFJN].

141. 7 U.S.C. § 1.

142. See, e.g.,, The Long Arm of the CFTC: What Stakeholders in the MENA Region Should

Know, JONES DAY INSIGHTS (July 2021) https://www.jonesday.com/en/insights/2021/07/the-long-

arm-of-the-cftc [https://perma.cc/ZP8E-TYDL].

143. 15 U.S.C. § 77v(c).

144. 15 U.S.C. § 78aa(b).



34 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

Investment Advisers Act of 1940.145

Unfortunately, the SEC and certain other U.S. authorities seem to enjoy the
header of the added provisions so much that they don’t read beyond it. True, the
amendment overcomes the presumption against extraterritoriality and overrules
Morrison, which was decided before the entry into force of Dodd-Frank.
However, the added extraterritorial language is by no means unlimited. In fact,
there still is a “conduct-and-effects test” that has to be met before extraterritorial
jurisdiction shall be exercised. As the statute clearly requires, the SEC and other
U.S. authorities have to demonstrate that there was either “conduct within the
United States” or “a foreseeable substantial effect within the United States.”146

The statute does not say that any effect would suffice or that largely speculative
effects would be enough to create U.S. jurisdiction over a case, nor does it say
that American authorities have extraterritorial jurisdiction over the blockchain
and cryptocurrency markets everywhere. Even if Congress did provide a
clarification and some extraterritorial powers via Dodd-Frank, one simply cannot
argue that Congress, in so doing, intended to overrule and discard the entire body
of international and national law urging restraint in the extraterritorial application
of U.S. law.

IV. CONCLUSIONS

Jurisdiction of the SEC and CFTC is not a problem if natural or legal persons
in the blockchain and cryptocurrency space have a physical presence in the
United States. They may be incorporated elsewhere, but if they have offices in the
U.S. or if their companies are owned by American citizens, the U.S. government
has regulatory and enforcement jurisdiction under the territoriality and/or the
active personality principle.

In the case of companies that do not have an incorporation or physical office
in the U.S. and are not owned or operated by U.S. citizens, the SEC and CFTC
could argue that their interventions against these companies are justified under
the passive personality principle if they are issuing digital currencies without
prior registration in the U.S. and without making sure that potential U.S.-based
buyers are excluded from purchasing them. As we have seen in the introduction,
the passive personality principle permits states to take action if their nationals are
injured by foreign parties. 

However, there is a hierarchy in the jurisdictional bases. The first, and
strongest, base is the territoriality principle, which gives priority for the
regulation of companies and securities to the jurisdiction or country where they
are domiciled and issued. The second base is the active personality principle,
which gives authority to the home country of a natural or legal person to regulate
the conduct of that person wherever it occurs in the world, provided this does not
conflict with the territorial sovereignty of another country.147 In terms of the third

145. 15 U.S.C. § 80b-14(b).

146. 15 U.S.C. § 77v(c)(2) (emphasis added).

147. As early as 1927, the Permanent Court of International Justice (PCIJ) declared that 



2023] THE LONG ARM OF THE SEC 35

base, the passive personality principle only gives authority to enforce domestic
laws in international cases if there is no conflict with either the territorial
sovereignty or the active personality jurisdiction of other countries. Finally,
regarding the fourth base, the universality principle only kicks in after a matter
remains unregulated by any and all of the countries with higher priority
jurisdictional claims.

The hierarchy can be illustrated quite easily. Even though German law allows
consumption of alcohol from age sixteen and up, this does not mean that German
nationals under the age of twenty-one can lawfully consume alcohol in the United
States. Nor does it mean that German authorities have any obligation to assist
American authorities in trying to determine whether American nationals under the
age of twenty-one were consuming alcohol during a visit to Germany. It is a
general principle of international criminal law that countries asked for their legal
assistance in the determination of crimes and misdemeanors will only lend a hand
if the conduct in question is illegal also in their jurisdiction.148 These principles
apply equally for administrative regulations and enforcement actions.

Transferred to this case, this casts a problematic light on SEC interventions
in cases like Telegram. 

The SEC had jurisdiction in Rivetz because the owner Steven Sprague was
a U.S. national and operated at least part of the enterprise on U.S. territory.

The CFTC also had jurisdiction in Digitex although Adam Todd was a British
citizen and all of his companies were incorporated outside of the U.S. Todd made
the fundamental mistake of establishing a residence in Miami and running part
of his operations from there.

Even in criminal cases like Bitconnect149 or Terraform and Do Kwon,150 the
SEC has a persuasive claim to jurisdiction on the basis of the passive personality
principle because American citizens were defrauded. However, once Do Kwon
is apprehended and any remaining assets of Terraform are being distributed, U.S.
claims to enforce U.S. laws will be secondary to Korean claims.151 Korea may

the first and foremost restriction imposed by international law upon a State is that –

failing the existence of a permissive rule to the contrary – it may not exercise its power

in any form in the territory of another State. In this sense jurisdiction is certainly

territorial; it cannot be exercised by a State outside its territory except by virtue of a

permissive rule derived from international custom or from a convention. 

The Case of the S.S. ‘Lotus’ (Fr. v. Turk.), Judgment, 1927 P.C.I.J. (ser. A) No. 10, at 15-16 (Sept.

7).

148. See, e.g., Sharon A. Williams, The Double Criminality Rule and Extradition: A

Comparative Analysis, 15 NOVA L. REV. 581-623 (1991).

149. See Indictment, supra, note 102 and accompanying text.

150. SEC v. Terraform Labs Pte Ltd., No. 22-368, 2022 WL 2066414 (2nd Cir.  June 8, 2022),

Court of Appeals Affirms Order Against Terraform and Kwon in SEC Subpoena Enforcement

Action, Release No. 25415 (June 9, 2022).

151. As Doyle wrote to the U.S. Congress in 2016, “[a]lthough the crimes over which the

United States has extraterritorial jurisdiction may be many, so are the obstacles to their

enforcement. For both practical and diplomatic reasons, criminal investigations within another



36 INDIANA INT’L & COMP. LAW REVIEW [Vol. 33:1

choose to extradite Mr. Kwon to the U.S. should a request be made, but it is under
no obligation to do so. Furthermore, if Mr. Kwon should be criminally charged
and convicted in Korea, he could no longer be prosecuted a second time in the
U.S. after having served time in Korea. The prohibition of double jeopardy152

would stand in the way of any attempts to factually undermine the priority of
Korean jurisdiction over the actions of Terraform and the person Do Kwon.

However, in the absence of territorial and active personality links, and outside
of the realm of international criminal law, the U.S. and its regulatory authorities,
including even the SEC, simply do not have the power to be the global regulator
of digital money. The argument by the SEC that protection of American investors
is part of their core mandate and that this gives it the power to control any issue
of digital money anywhere in the world unless any access by Americans is
physically prevented,153 simply does not hold up under international law.

Most importantly, such a claim does not hold up under U.S. law either. There
is no way the District Court in Barron v. Helbiz can credibly claim a substantial
effect within the United States after one single person in Texas managed to buy
a crypto coin in spite of a prohibition by the issuer.

Furthermore, even in Telegram, the SEC did not show a foreseeable
substantial effect within the United States. It could have made the argument, but
it did not even bother to do so because it seems to think that Dodd-Frank has
given it virtually unlimited extraterritorial jurisdiction. However, an
unsubstantiated claim to regulatory and enforcement jurisdiction by the SEC in
a case like Telegram is simply unacceptable and falls under the abuse of rights
doctrine. As the case presented itself, Telegram offered to exclude American
investors from the distribution of Grams. Sure, it is possible and even probable
that at least some of the third country investors would have eventually resold
Grams to U.S. investors, including U.S. retail investors. However, that effect was
still somewhat remote and hard to substantiate. Even if we accept that sooner or
later, American investors would have ended up with Grams, they freely choose
to purchase digital coins or tokens from a foreign issuer, they do so at their free
will and largely conscious of the risks involved. The American buyers may be
business-minded investors interested in the commercial applications under

country require the acquiescence, consent, or preferably the assistance, of the authorities of the host

country. The United States has mutual legal assistance treaties with several countries designed to

formalize such cooperative law enforcement assistance.” CHARLES DOYLE, CONG. RSCH. SERV.,

RS22497, EXTRATERRITORIAL APPLICATION OF AMERICAN CRIMINAL LAW: AN ABBREVIATED

SKETCH 3 (2016), https://crsreports.congress.gov/product/pdf/RS/RS22497 [https://perma.cc/CJW7-

ZMU7].

152. As outlined above, in international cases, this is commonly referred to as the dual

criminality or double criminality requirement. As Doyle wrote to Congress in 2016, “[t]he nation’s

recently negotiated extradition treaties address some of the features of earlier agreements which

complicate extradition for extraterritorial offenses, that is, dual criminality requirements; reluctance

to recognize extraterritorial jurisdiction; and exemptions on the basis of nationality or political

offenses.” Id.

153. See Bini & Howe, supra note 79.



2023] THE LONG ARM OF THE SEC 37

development by the foreign issuer. Alternatively, and this is usually true of the
majority of those buyers, the American buyers may be unsophisticated retail
investors speculating that the particular coins or tokens will experience a rapid
increase in value. The actions of the SEC would not only prevent both types of
American investors from accessing these markets, but as the Telegram case
shows, they actually prevent the development of the business in its entirety,
unless the cumbersome and expensive American filings have been made. And
even if those filings did get done, we may safely assume that not one of the retail
investors the SEC is so worried about would read, let alone understand the
disclosures required by the SEC—a classic case of form over function.

In conclusion, we don’t prevent Americans from gambling in foreign casinos
while in Monte Carlo or Macao. We don’t even prevent Americans from buying
traditional securities from foreign issuers that have not filed with the SEC. The
SEC does not even attempt to stop a U.S. citizen domiciled in the U.S. from using
the internet to instruct a broker in Hong Kong or London or Dubai to purchase
common stock of foreign companies on their respective exchanges on behalf of
the U.S. client. As long as a foreign issuer does not seek to list their traditional
shares or securities on U.S. exchanges, the U.S. does not arrogate to itself the
authority to be the global regulator of stock exchanges and securities trading
places. However, this is precisely what the SEC is doing for digital currencies,
and the only jurisdictional basis it can claim for this overreach is the principle of
“yes, we can.”