UNITED STATES DISTRICT COURT

 SOUTHERN DISTRICT OF FLORIDA

CASE NO.: 1:22-cv-23171-BLOOM/Otazo-Reyes

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

v.

ARBITRADE LTD., 

CRYPTOBONTIX INC., 

TROY R.J. HOGG, 

JAMES L. GOLDBERG, 

STEPHEN L. GOLDBERG, and

MAX W. BARBER,

Defendants,

and SION 

TRADING FZE,

Relief Defendant.

/ 

DEFENDANT JAMES L. GOLDBERG’S REPLY MEMORANDUM OF LAW

Defendant James L. Goldberg respectfully submits this reply memorandum of law in 

further support of his motion to dismiss with prejudice the SEC’s complaint (ECF No. 1) for lack 

of subject matter jurisdiction pursuant to Federal Rules of Civil Procedure (“Fed. R. Civ. P.”) 

12(b)(1) and failure to state a claim pursuant to Fed R. Civ. P. 12(b)(6).

PRELIMINARY STATEMENT

In his initial moving papers, Mr. Goldberg set forth why the SEC’s complaint is predicated 

on a mistaken assumption: that the laws allegedly violated were securities. 

Case 1:22-cv-23171-BB Document 62 Entered on FLSD Docket 02/21/2023 Page 1 of 6
2

In opposition, the SEC underscores its foundational error by asking this Court to infer from 

the Supreme Court’s familiar Howey standard, see SEC v. W.J. Howey Co., 328 U.S. 293, 301 

(1946), an applicability to cryptocurrency that no federal appellate court has found to exit. In so 

doing, the SEC disregards the growing body of opinion and commentary, outlined in Mr. 

Goldberg’s Opening Memorandum, that the tokens at issue here are not securities, but rather are 

virtual currency or commodities that are properly regulated by the Commodity Futures Trading 

Commission. Mr. Goldberg acknowledges, as he must as movant, that this area of the law is 

unsettled. The SEC appears to offer no such acknowledgment. However, this area of the law may 

soon be settled. The status of cryptocurrency is at issue in various jurisdictions and a federal 

appellate court may issue a persuasive or controlling opinion in the course of this litigation. 

As such, this reply is intended to bring to this Court’s attention the emerging basis for 

finding that the tokens at issue are not, and cannot be, securities, and the SEC therefore lacks 

jurisdiction to bring this case. 

Case 1:22-cv-23171-BB Document 62 Entered on FLSD Docket 02/21/2023 Page 2 of 6
3

ARGUMENT

THE SEC FAILED TO REBUT MR. GOLDBERG’S DEMONSTRATION THAT IT

LACKS CLEAR AUTHORITY TO REGULATE DIGITAL CURRENCIES AND 

THEREFORE THIS COURT SHOULD DISMISS THE COMPLAINT

In opposition, the SEC cannot point to any controlling appellate authority holding that

cryptocurrency tokens such as those at issue here are securities. The entire legal community, as 

well as the cryptocurrency and securities industries, await controlling authority on this issue. A 

growing body of opinion and commentary appears to indicate that when such authority is issued, 

it will favor Mr. Goldberg’s position here. 

This reply largely tracks the argument set forth in an amicus curiae brief in an analogous 

case, SEC v. LBRY, 21-cv-00260-PB (D.N.H.), filed on December 20, 2022. (See ECF No. 95.) 

That case has been widely noted for the SEC’s on-the-record concession at a hearing on January 

30, 2023, that secondary market sales in the cryptocurrency tokens at issue could not be 

categorized as securities. By this concession, the SEC acknowledged that they had mislabeled 

contested secondary sales as securities in their complaint and prosecuted the case, in part, on this 

mistaken basis. See e.g., https://cointelegraph.com/news/sec-settles-on-security-claim-in-lbrycase-community-calls-it-a-big-win-for-crypto (last viewed on February 15, 2023). 

In this case, as in SEC v. LBRY, supra, the SEC fails to identify case law from the Supreme 

Court or any appellate court holding, or even analyzing, whether an underlying asset of an 

investment contract is itself a security. This, Mr. Goldberg submits, is for two reasons. First, there 

is no such authority and in its absence, the complaint is not just jurisdictionally defective but also 

represents egregious administrative overreach. Second, and more particularly, the underlying asset 

utilized in an investment contract transaction is never the security. See Howey, 328 U.S. at 301 

(“If that test be satisfied, it is immaterial... whether there is a sale of property with or without 

Case 1:22-cv-23171-BB Document 62 Entered on FLSD Docket 02/21/2023 Page 3 of 6
4

intrinsic value.”). See also SEC v. Telegram Grp., Inc., 448 F. Supp. 3d 352, 379 (S.D.N.Y. 2020) 

(“the security...is not simply the Gram, which is little more than alphanumeric cryptographic 

sequence.”). 

Therefore, the SEC’s extensive analysis of the Howey factors in its opposition is simply 

inapposite. What the SEC’s analysis is meant to demonstrate is that the subject tokens are 

themselves securities. This is akin to calling the oranges in Howey securities, which they were not. 

In Telegram, the District Court clarified its original decision, making clear that the underlying 

asset (whether oranges or digital tokens) are not themselves investment contracts. See SEC v. 

Telegram Grp. Inc., No. 19-cv-9439 (PKC), 2020 WL 1547383 at *1 (S.D.N.Y. Apr. 1, 

2020)(clarifying that the central point of the Court’s holding was that “the ‘security’ was neither 

the Gram Purchase Agreement nor the Gram.”). 

On this topic, contrary to the SEC’s assertion in their opposition, former SEC Director

William Hinman unequivocally stated: “the token – or coin or whatever the digital information 

packet is called – all by itself is not a security, just as the orange groves in Howey were not.”1

Director Hinman noted that “the digital asset itself is simply code” and emphasized, “the analysis 

of whether something is a security is not static and does not strictly inhere to the instrument.” Id. 

Just like any other commodity, “investment contracts can be made out of virtually any asset 

(including virtual assets).” Id. 

Former SEC Chairman Jay Clayton agreed. See Mar. 7, 2019 Ltr. from Chairman J. Clayton 

to Congressman Ted Budd (“I agree that the analysis of whether a digital asset is offered or sold 

1 Digital Asset Transactions: When Howey Met Gary (Plastic) (June 14, 2018). (Available at 

https://www.sec.gov./news/speech/speech-hinman-061418) (last viewed on February 15, 2023). 

Case 1:22-cv-23171-BB Document 62 Entered on FLSD Docket 02/21/2023 Page 4 of 6
5

as a security is not static and does not strictly inhere to the instrument.”)2 These statements make 

sense considering any asset or commodity can be offered as a security, whether that asset is orange 

groves (Howey, 328 U.S. 293), or Bitcoin. See SEC v. Shavers, 4:13-cv-00416, 2013 WL 4028182 

(E.D. Tex. Aug. 6, 2013). When an asset is offered and sold as an investment contract, and 

therefore a security, it does not transform the underlying asset itself into a security. Oranges remain 

oranges and tokens at issue here remain digital code. 

In this regard, a recently-published, comprehensive study reviewed every single relevant 

federal appellate case that has applied Howey. That study – The Ineluctable Modality of Securities 

Law: Why Fungible Crypto Assets Are Not Securities by Lewis Rinaudo Cohen – was submitted 

as an exhibit to an amicus brief in SEC v. LBRY, 21-cv-00260-PB (D.N.H.) (ECF No. 95-2), and 

is annexed to the accompanying Declaration of Andrew K. Levi as Exhibit A. The study 

indicates that no federal appellate court has ever held the underlying asset subject to an 

investment contract transaction, is itself an investment contract. This is what undermines the 

SEC’s opposition here and is at the very heart of their assertion that the DIG token is a security. 

Finally, the SEC asserts that the exhibits submitted with Mr. Goldberg’s moving papers 

should be disregarded or if not, warrant the conduct of discovery because his argument regarding 

the lack of subject matter jurisdiction is purportedly “inextricably intertwined” with the merits of 

this lawsuit under Lawrence v. Dunbar, 919 F.2d 1525, 1528-29 (11th Cir. 1990). See ECF No. 

48, § C at 12-14. To the contrary, the exhibits are submitted for this Court’s convenience, to 

provide minimal context for the proper consideration of jurisdiction and for no other purpose. As 

a result, they may be considered within the strict confines of Fed. R. Civ. P. 12(b)(1) and (6). 

2

 Available at https://www.coincenter.org/app/uploads/2020/05/clayton-token-response.pdf. (last 

viewed on February 15, 2023). 

Case 1:22-cv-23171-BB Document 62 Entered on FLSD Docket 02/21/2023 Page 5 of 6
6

On these bases, this Court lacks subject matter jurisdiction over this case. 

CONCLUSION

For the foregoing reasons and those set forth in Mr. Goldberg’s initial moving papers, the 

complaint should be dismissed with prejudice. 

Dated: February 21, 2023 Respectfully submitted, 

By: /s/ Andrew K. Levi 

Andrew K. Levi, Esquire 

Florida Bar No. 48774 

Email: alevi@llmlawfirm.com 

LEHR LEVI & MENDEZ, P.A. 

1401 Brickell Avenue, Suite 910 

Miami, Florida 33131 

Telephone: 305-377-1777 

Fax: 305-377-0087 

Attorneys for Defendant, James L. Goldberg 

Case 1:22-cv-23171-BB Document 62 Entered on FLSD Docket 02/21/2023 Page 6 of 6