A Duke University law lecturer argues the Trump-family-linked World Liberty Financial ($WLFI) token may be an unregistered security, inviting potential SEC scrutiny over its 25 billion token presale and centralized control.
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Duke scholar questions if 1 Trump-linked token is a security
A Duke University law lecturer argues that the World Liberty Financial ($WLFI) token, a project with deep connections to the Trump family, likely constitutes an unregistered security. In a detailed analysis, Lee Reiners, a former Federal Reserve examiner, applied the Howey Test to the project’s sale of approximately 25 billion tokens, suggesting it could face scrutiny from the U.S. Securities and Exchange Commission.
"WLFI is not a decentralized commodity. It is a Trump-branded governance token sold to finance a centrally controlled crypto business. If the SEC’s interpretation means anything, it should apply here," Reiners wrote in a blog post published Friday.
The argument hinges on the structure of the project and its token sale. An entity affiliated with the Trump family, DT Marks DEFI LLC, owns about 38% of the project and is entitled to 75% of net proceeds from WLFI token sales, according to the project's website. Further, World Liberty Financial used its governance token in a $75 million stablecoin loan from the Dolomite protocol, whose co-founder acts as an adviser to World Liberty.
For investors, a potential SEC enforcement action could lead to fines, delisting from exchanges, and significant selling pressure on the token. The case highlights the persistent legal risks surrounding crypto tokens that are used for capital raising, particularly those that claim "decentralized" governance while maintaining centralized control and directing profits to insiders.
The Howey Test and Profit Expectations
Reiners’ analysis centers on the Howey Test, a legal standard used by U.S. courts to determine if a transaction is an "investment contract" and therefore a security. He argues that despite the project’s "Gold Paper" positioning $WLFI as a pure governance token with no rights to profits or dividends, its marketing and sale created a reasonable expectation of profit for buyers.
The paper notes that the token was sold before the World Liberty protocol was fully developed, leveraging the Trump family name to attract investors. "The SEC’s interpretation specifically emphasizes that issuer marketing matters; that white papers and official communications matter; and that promises to develop a crypto system... can create a reasonable expectation of profit," Reiners argued.
Centralization Claims Under Fire
The project's claims of decentralized governance are further undermined by a lawsuit from TRON founder Justin Sun. Sun, an early and substantial investor, alleged that World Liberty froze his tokens and blocked his governance rights, revealing that the project’s operators retained unilateral control over the assets.
According to Sun’s complaint, World Liberty implemented a "blacklisting" function in the token's smart contract without a governance vote, allowing it to freeze tokens at any address. Reiners contends that if an issuer can unilaterally freeze assets, restrict transfers, and override governance, the token's value remains dependent on the issuer's "essential managerial efforts," a key pillar of the Howey analysis. This operational reality, Reiners argues, is that of a centrally managed business, not a decentralized protocol.
This article is for informational purposes only and does not constitute investment advice.
[1] Duke University Scholar: WLFI May Be an Unregistered Security, Questions Whether the SEC Has the Independence to Investigate[2] Duke law lecturer argues Trump-connected World Liberty Financial issued a security - The Block[3] Is $WLFI an Unregistered Security? – The FinReg Blog - Sites@Duke Express[4] Duke Law Instructor: Trump Family’s WLFI Token Appears to Be an Unregistered Security - Cryptonews.net[5] Trump-Connected World Liberty Financial Faces Security Allegations From Duke Law Expert - Crypto Economy
