A lecturing fellow at the Duke Financial Economics Center published an analysis on the FinReg Blog, hosted on Securities Docket, on May 8 arguing that World Liberty Financial's governance token, $WLFI, meets the legal definition of an unregistered security under U.S. federal law. The analysis, written by Lee Reiners of the Duke Financial Economics Center, comes as the Securities and Exchange Commission has taken no public enforcement action against the project despite its direct ties to President Donald Trump and his family.

The Legal Argument

Reiners applied the Howey Test, a long-standing U.S. Supreme Court standard used to determine whether a financial product qualifies as a security. Under that test, a product is a security if it involves: (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, and (4) returns derived from the efforts of others. Reiners concludes WLFI satisfies all four prongs: the public paid real money for the token, the project operates as a shared venture, buyers were drawn in by the prospect of gains, and those gains were tied to decisions made by the Trump family and the project's founders rather than any autonomous protocol.

His analysis also takes direct aim at the SEC's current posture toward crypto. Under Chairman Paul Atkins, appointed by Trump, the agency has broadly classified most tokens as either digital commodities or digital tools under its "Project Crypto" framework. Reiners argues this classification does not hold for WLFI. The token was actively marketed with profit expectations, and insiders retain overwhelming control over both the money raised and governance decisions. "If this were any other crypto issuer, would the SEC be investigating?" Reiners wrote in the piece.

Reiners also argues the double standard becomes harder to ignore given the SEC's March 2026 settlement with Justin Sun, a prominent WLFI financial backer. Sun paid $10 million to resolve claims that his TRX and BTT tokens were unregistered securities. Reiners contends the Howey reasoning the SEC applied to Sun's tokens maps closely onto the WLFI structure.

How the Money Flows

The distribution of proceeds from WLFI token sales is central to Reiners' argument. Under the project's terms, the Trump family and affiliated insiders receive 75 percent of net proceeds from public sales. At launch, 22.5 billion tokens were set aside for insiders. By December 2025, the Trump family had reportedly collected roughly $1 billion from token sales while still holding an estimated $3 billion worth of unsold tokens.

Two additional transactions are directly relevant to the Howey analysis. Before Trump's January 2025 inauguration, a UAE state-backed investment fund purchased a 49 percent stake in World Liberty Financial for $500 million, the first sovereign-linked transaction in the project's history and evidence bearing on both the "common enterprise" and profit-expectation prongs of the test. Separately, 5.9 billion tokens were sold to accredited investors in a private placement at undisclosed terms, a structure that itself invokes recognized securities law frameworks.

In April 2026, World Liberty Financial pushed through a proposal to unlock 62.3 billion previously locked tokens. The vote passed with 99.5 percent approval, a figure that reflects how concentrated voting power is within the project. The top four wallets control approximately 40 percent of all governance votes. The largest single wallet holds close to 13 percent. Separately, the project used 5 billion WLFI tokens as collateral to borrow $75 million from a platform whose co-founder is also a WLFI advisor, a circular arrangement that observers have compared to practices at FTX, according to reporting by CoinDesk.

As of May 8, WLFI trades at approximately $0.073, with a reported market capitalization of around $2.33 billion. The token has roughly 98,000 on-chain holders tracked by Etherscan and a circulating supply of 31.77 billion out of a 100 billion maximum. In total, the project has raised more than $550 million across public and private sales.

What This Means Outside the United States

The legal question carries practical weight beyond U.S. borders. In January 2026, Pakistan's finance ministry signed a memorandum of understanding with SC Financial Technologies LLC, a World Liberty Financial affiliate, to explore integrating the project's USD1 stablecoin into cross-border payment infrastructure. Zach Witkoff, a WLF co-founder, and Pakistani Finance Minister Muhammad Aurangzeb negotiated the agreement. Pakistani officials have said any integration would require oversight from the State Bank of Pakistan, including reserve transparency and compliance with anti-money-laundering and counter-terrorism financing standards. Legal observers note that if U.S. regulators move against the broader WLF enterprise, the uncertainty could ripple into that partnership framework, since USD1 and WLFI share the same issuer structure.

In Nigeria, where crypto adoption is among the highest in Africa and the national securities regulator already classifies some tokens as investment contracts, a formal U.S. reclassification of WLFI could prompt parallel reviews of DeFi governance tokens on local platforms. Nigerian retail participants currently trade WLFI on open secondary markets. A ruling that restricts sales to accredited investors only would cut off that access.

In India, retail participation in WLFI has occurred through platforms including ZebPay. Indian holders are already subject to a 30 percent flat tax on crypto gains. A U.S. securities reclassification could complicate WLFI listings under the Securities and Exchange Board of India's evolving regulatory framework, adding legal uncertainty for Indian investors who acquired the token expecting governance rights rather than regulated investment exposure.

The WLFI case illustrates a broader structural risk for retail investors across South Asia and Africa. Many participants hold governance tokens issued under U.S. jurisdiction but operate in markets where securities enforcement is limited or nascent. A reclassification by the SEC would shift compliance obligations onto issuers and exchanges but leave ordinary token holders exposed to the legal and financial consequences of a designation change they had no role in shaping.

What Comes Next

House Democrats sent a letter to Atkins in March 2026 requesting a formal investigation into WLFI's status. The SEC has not opened a public investigation into WLFI. The GENIUS Act, signed into law by Trump in July 2025, was the first major piece of U.S. crypto legislation; it established a framework for USD-backed payment stablecoins but explicitly excludes governance tokens like WLFI from its scope. Implementing rules for the GENIUS Act are due by July 2026.

Reiners' analysis is a public legal argument, not a lawsuit. But it adds to a growing record that regulators, Members of Congress, and legal academics are pressing a question the SEC has so far declined to address publicly.