The 2019 SEC Digital Asset Framework: A Retrospective

The 2019 Framework: A Pivotal Moment for Crypto Regulation

In April 2019, amidst a flurry of calls for regulatory clarity, the U.S. Securities and Exchange Commission (SEC) released a landmark document titled the “Framework for Investment Contract Analysis of Digital Assets.”

Authored by two of the agency’s top crypto experts—Bill Hinman (then Director of Corporation Finance) and Valerie Szczepanik (Senior Advisor for Digital Assets)—the guide was intended to help issuers determine if their tokens were securities under federal law.

While the document was explicitly labeled as “non-binding staff guidance,” it introduced key concepts that would shape the industry’s legal battles for the next half-decade.

Breaking Down the Framework

The Framework attempted to modernize the 71-year-old Howey Test for the blockchain era. It introduced the concept of the “Active Participant” (AP).

According to the guidance, a token is likely a security if purchasers rely on the managerial efforts of an AP to determine the network’s success. Factors indicating this reliance included:

• The AP retains a stake or interest in the digital asset.
• The AP is central to the governance or code updates of the network.
• The AP holds intellectual property rights necessary for the network to function.

Conversely, the framework suggested that if a network became “sufficiently decentralized” (a phrase coined in Hinman’s famous 2018 speech), the reliance on an AP might diminish, potentially removing the asset from securities classification.

The Fate of the “Compliant” Pioneers

The original article highlighted Paragon Coin and Gladius Network as examples of SEC intervention. Looking back, these cases serve as cautionary tales about the high cost of compliance.

• Gladius Network: The article originally noted that Gladius “avoided hefty fines” by self-reporting. However, the outcome was far grimmer. The costs of the settlement—which required Gladius to reimburse investors and file as a public reporting company—proved insurmountable. By late 2019, Gladius Network dissolved, leaving the “compliant path” looking more like a dead end for smaller startups.
• Paragon Coin: Similarly, Paragon agreed to a settlement but failed to meet its registration obligations. The company eventually declared bankruptcy, and its founders faced prolonged legal challenges.

These failures demonstrated that while the SEC offered a path to registration, the economic reality of fitting utility tokens into 1930s securities laws was often fatal for the project.

The Legacy of Bill Hinman

Bill Hinman, one of the framework’s primary architects, left the SEC in late 2020, but his shadow looms large over the industry. His 2018 speech declaring that Ethereum was “not a security” became the focal point of the massive SEC v. Ripple lawsuit.

The so-called “Hinman Documents,” released during discovery, revealed intense internal debate at the SEC regarding these definitions. They highlighted that the “clarity” provided in the 2019 Framework was far from a consensus opinion within the agency itself.

Current Status: Where Are They Now?

• Valerie Szczepanik: Known as the “Crypto Czar” in 2019, Szczepanik remains a key figure at the SEC. In August 2025, she was appointed to lead the agency’s newly formed Artificial Intelligence (AI) Task Force, shifting her focus to the intersection of AI and financial regulations.
• The Framework: While still referenced, the 2019 Framework has largely been superseded by legislative efforts like the FIT21 Act (Financial Innovation and Technology for the 21st Century Act). Lawmakers recognized that “staff guidance” was insufficient to regulate a trillion-dollar industry, leading to the push for clear statutory definitions that separate digital commodities (CFTC) from digital securities (SEC).

Conclusion

The 2019 Framework was an earnest attempt to interpret old laws for new technology. However, the subsequent dissolution of companies like Gladius and the years of litigation that followed proved that “guidance” was not enough. The industry’s survival ultimately depended not on interpreting the Howey Test, but on rewriting the rules entirely.