The CLARITY Act, which is intended to provide regulatory clarity to the crypto industry, has been working its way through Congress for the past couple of years, but Duke University lecturing fellow Lee Reiners, who previously worked as a bank examiner at the New York Federal Reserve, says the new law would remove securities regulation protections for consumers from crypto tokens such as the Trump-affiliated World Liberty Financial’s WLFI token. The claim was made in a new blog post published by Reiners on Friday where he also claimed that WLFI is an unregistered security as it exists today and the SEC lacks the integrity needed to enforce the law.
Reiners builds his case that WLFI functions as an unregistered security by applying the Howey test, a legal framework established by the Supreme Court in 1946. Under that test, an investment contract qualifies as a security when it involves an investment of money in a common enterprise with a reasonable expectation of profits derived primarily from the efforts of others. He walks through each element with evidence drawn from World Liberty Financial’s Gold Paper whitepaper, token sales data, marketing materials, and operational decisions.
Some of the supporting evidence Reiners pointed to when making his case include: World Liberty Financial sold WLFI tokens to raise capital for the development of the WLF Protocol, Trump family-affiliated entities hold equity stakes in the parent company and receive a large share of net revenues, WLFI token buyers had a reasonable expectation of profits based on marketing materials that emphasized future growth, and World Liberty Financial has retained centralized control through a Delaware nonstock corporation structure and various technical mechanisms such as manual upgrades via multisig wallets and the freezing of tokens.
Reiners maintains that WLFI remains an unregistered security even under the SEC’s recently-updated guidance issued in March. That interpretation introduces different categories of crypto assets such as digital commodities, digital collectibles, digital tools, stablecoins, and digital securities. Reiners calls the framework legally flawed and inconsistent with decades of precedent because it ignores the economic substance of what’s happening in practice despite all of the marketing terminology around blockchain technology. That said, even under this new regulatory framework for crypto, Reiners says WLFI fails to qualify as a pure digital commodity like bitcoin, whose value derives from a functional, decentralized network.
Reiners also points to several signs that the U.S. Securities and Exchange Commission (SEC) currently lacks the integrity or independence to pursue a hypothetical case against World Liberty Financial. Enforcement actions against crypto projects have slowed dramatically over the past year, with many cases paused or dismissed amid broader statements favoring the industry. This shift has coincided with developments that benefit Trump-connected ventures, which reportedly led to $1.4 billion in profits for the Trump family last year.
In the conclusion of his post, Reiners bluntly states, “The SEC has the legal authority to investigate World Liberty. But do they have the integrity and independence to investigate a crypto venture in which the president and his family have a direct financial stake? Unfortunately, recent history suggests the answer is no.”
Reiners also contends that the CLARITY Act would let World Liberty Financial sidestep securities regulation entirely if it passes in its current form. Senate drafts classify tokens like WLFI as network tokens, defined as digital commodities tied to a distributed ledger and treated as non-securities. This change would eliminate the consumer protections embedded in securities laws, such as mandatory disclosures and antifraud provisions.
Of course, it remains unclear whether the CLARITY Act will pass in its current form. The Senate Banking Committee has scheduled a markup for Thursday to amend and vote on the sweeping crypto legislation. A prior standoff between banking and crypto interests over stablecoin yield appears resolved after new language was released last week, although some bank trade groups say the fix falls short. However, lingering ethics questions persist around crypto profiteering by government officials. Senator Kirsten Gillibrand has stated that the bill will not move forward without a provision banning senior officials, including the president and members of Congress, from holding personal financial interests or industry ties in digital assets.
Democrats have pointed the crypto grifting and corruption finger at Trump on a few separate occasions. House Democrats sent a letter to the SEC raising pay-to-play concerns tied to the industry’s influence. They cited the pardon of Binance co-founder Changpeng Zhao, whose exchange now holds roughly $2 billion in World Liberty Financial’s USD1 stablecoin and generates tens of millions in annual revenue for the project. Another example involved a UAE-linked investment firm purchasing a 49% stake in World Liberty Financial for $500 million just before the UAE received approval for hundreds of thousands of previously restricted Nvidia AI chips. Crypto billionaire Justin Sun, who holds substantial WLFI and TRUMP memecoin positions, and is now suing World Liberty Financial over frozen tokens, unilateral smart-contract changes, and pressure for additional investments, has also featured in these criticisms.
