How Barry v. SEC could provide the legal certainty needed to foster innovation, accelerate capital formation, and ensure that all Americans have equal access to portfolio diversification.
By Dara Albright, Board Member, ICAN Law
Imagine an entrepreneur spends five years developing a platform that enables people to acquire fractional ownership interests in income-producing apartment buildings.
She designs the technology, performs extensive due diligence, develops the operating framework, and creates the infrastructure that makes fractional ownership possible.
By the time anyone acquires an ownership interest, the entrepreneur’s work is largely complete. The owners simply receive their proportionate share of the rental income generated by the property.
Should those pre-purchase efforts alone be enough to transform those ownership interests into federally regulated securities?
For decades, securities law has struggled to answer that question. Today, there is still no clear answer. And that ambiguity is the problem.
Since 1946, courts have relied on the Supreme Court’s Howey decision to determine what counts as a security. Under Howey, an investment contract depends partly on whether investors expect profits from the “efforts of others.” But courts remain divided on which efforts qualify. Do only a promoter’s ongoing actions after investors buy in matter? Or can years of prior work – building software, designing a blockchain, or creating the infrastructure that makes fractional ownership possible – be enough on their own?
The most authoritative answer anyone has given to that question came three decades ago, from a judge whose credentials are hard for skeptics to dismiss. Judge Douglas Ginsburg was appointed to the D.C. Circuit by Ronald Reagan in 1986. Before that, he ran the Reagan White House’s regulatory-review office and headed the Justice Department’s Antitrust Division; Reagan later chose him for the Supreme Court seat that ultimately went to Anthony Kennedy. Ginsburg has spent the decades since as one of the country’s leading legal scholars, teaching antitrust and administrative law at George Mason’s Scalia Law School. When a jurist with that record writes for the court that sits, literally, across the street from the SEC’s own headquarters — and concludes the agency has overreached — it’s worth listening, regardless of where you sit politically.
In SEC v. Life Partners (1996), Judge Ginsburg’s opinion held that a promoter’s pre-purchase work — selecting, structuring, and packaging a deal before any investor shows up — does not by itself turn a product into a security. His reasoning rested on a simple economic point:
“[I]f the value of the promoter’s efforts has already been impounded into the promoter’s fees or into the purchase price of the investment, and if neither the promoter nor anyone else is expected to make further efforts that will affect the outcome of the investment, then the need for federal securities regulation is greatly diminished.”
That’s not a technicality — it’s a statement about how markets already price effort. If an entrepreneur’s years of work are baked into what an investor pays on day one, the investor has already compensated her for it, the same way a home buyer pays for a finished renovation once, not through an ongoing royalty tied to the contractor’s future labor. Flip that logic — treat pre-purchase effort as an open-ended trigger for securities regulation — and the incentive runs backward: the more diligently an entrepreneur does her homework before selling a stake, the more exposed she becomes to a regulator later arguing that the homework itself created a security. The entrepreneurs doing exactly what investors should want — careful, thorough, front-loaded work — would face the greatest legal risk for it. Judge Ginsburg’s opinion refused to reward that inversion.
That unresolved question has fueled years of conflicting court decisions, billions of dollars in legal costs, and significant regulatory uncertainty. It has been at the center of litigation involving Ripple, Coinbase, Kraken, and numerous blockchain developers. Entrepreneurs building innovative financial products often cannot know whether they are creating a regulated security or simply a new product until years later, when the regulators come knocking.
The consequences extend far beyond cryptocurrency.
Alternative investments have long been used by institutional investors to reduce risk through diversification. By allocating capital across assets that do not move in lockstep, institutions have historically strengthened long-term returns while reducing overall portfolio volatility.
Most everyday Americans have never enjoyed the same opportunities. Many alternative assets remain expensive, illiquid, or subject to regulatory barriers that limit broad participation.
Technology is beginning to change that.
Tokenization dramatically reduces the cost of ownership and improves liquidity.
Fractional ownership, enabled by blockchain technology, can turn a $50 million warehouse or a portfolio of music royalties into something a waiter, a gig worker, or even a college student can own a piece of in an individual retirement account.
The universe of tokenizable assets is effectively limitless. Virtually every income-producing asset – from apartment buildings and farmland to patents, royalty streams, privately held businesses, and infrastructure projects – could become investable.
While technology can help make alternative assets more affordable and liquid, it cannot solve the legal uncertainty that continues to prevent most Americans from achieving broader portfolio diversification.
Risk mitigation should not be a privilege reserved for institutions. It should be available to every investor.
If diversification is one of the most effective ways to protect investors from unnecessary risk, then expanding access to diversification may be one of the most meaningful forms of investor protection ever devised.
That promise cannot be realized without legal certainty.
Entrepreneurs don’t spend years developing innovative financial products if they cannot know whether those products will later be deemed securities. Investors don’t commit capital to platforms operating under regulatory clouds. And the United States doesn’t remain the world’s leader in financial innovation by forcing its most creative entrepreneurs to build amid legal ambiguity.
Those are the real-world stakes of Barry v. SEC.
Recognizing the broader economic implications, the Investor Choice Advocates Network (ICAN) is supporting Brenda Barry, Eric Cannon, and Caleb Moody in seeking Supreme Court review. The case centers on three individuals who were never accused of fraud, deception, or causing investors financial harm – yet spent nearly a decade defending themselves over the legal classification of a product whose status remains deeply contested.
There’s a particular problem here that should trouble anyone who values predictable law, whatever their politics. The SEC’s home circuit — the D.C. Circuit — told the agency in 1996 that this category of instrument wasn’t a security. The SEC didn’t let that stand; it asked the full D.C. Circuit to rehear the case en banc, and in December 1996, that request was denied too. Two strikes, in the one circuit that sits directly over the SEC’s own headquarters. Rather than treat that as settled, the agency’s theory kept surfacing in enforcement actions in other circuits, eventually finding more receptive judges in the Fifth, Ninth, and Eleventh. Brenda Barry, Eric Cannon, and Caleb Moody sold interests for a company that had actually gotten legal advice on this exact question before going to market — advice grounded in the D.C. Circuit’s own binding precedent that these instruments weren’t securities. That advice didn’t protect them. Neither did the fact that the very same category of product, marketed the same way, had already been cleared by the appellate court sitting above the regulator bringing the case. If a company can do everything right — commission the analysis, follow the law of the circuit that oversees its own regulator — and still be told a decade later that a different circuit’s judges see it differently, then no amount of diligence buys legal certainty. That’s a rule-of-law problem, not just a securities-law problem.
The nation’s highest Court now has the opportunity to provide the legal certainty innovators need, investors deserve, and America’s capital markets have lacked for decades. By establishing a principled limit on what constitutes an investment contract, the Supreme Court could help lay the legal foundation for tokenization, capital formation, and broader investor access for decades to come.
It could also give financial advisors the durable judicial baseline they need to serve retail investors – the kind of lasting clarity that the CLARITY Act is still seeking to provide through legislation.
Throughout American history, economic progress has followed a straightforward pattern: entrepreneurs build, investors provide capital, and markets connect the two. What’s needed now are clear rules defining where innovation ends and federal securities regulation begins.
Get the answer right, and millions of American investors could finally gain access to what institutional investors have quietly enjoyed for decades: truly diversified portfolios built from the full breadth of the American economy.
Get it wrong, and the next generation of financial innovation will be built elsewhere – taking investment, jobs, and economic growth with it.
For the future of American prosperity, few Supreme Court cases could matter more.
Dara Albright is a board member and Chief Outreach & Engagement Officer of the Investor Choice Advocates Network (ICAN), with more than 34 years of experience in the financial services industry. She is a respected writer and podcast host focused on fintech, decentralized finance (DeFi), and regulatory innovation, and holds a Series 65 license.
