Duke University scholar: WLFI may be unregistered securities, questioning whether the SEC has independence to conduct an investigation

Deep Tide TechFlow News, May 9th, according to The Block, Duke University Law Lecturer and former New York Fed examiner Lee Reiners published an article on May 8th stating that the governance token WLFI issued by the DeFi project World Liberty Financial, which is closely associated with the Trump family, may constitute an unregistered security.

Reiners cited the recent token classification framework released by the SEC, indicating that WLFI is not a “pure digital commodity” and should be subject to SEC regulatory review. He believes that WLFI was publicly pre-sold approximately 25 billion tokens before the protocol was built, and marketing was conducted leveraging the Trump family brand effect. Buyers reasonably expected to profit from it, which meets the core criteria of the “Howey Test” used by the SEC to identify securities.

Regarding decentralization concerns, Reiners referenced a lawsuit filed by Justin Sun, stating that World Liberty unilaterally froze Sun’s held tokens and deprived him of governance rights, exposing a high degree of centralized control within the project. Additionally, he pointed out apparent conflicts of interest— the project borrowed $75 million stablecoins using 5 billion WLFI as collateral through the Dolomite protocol, and one of Dolomite’s co-founders is an advisor to World Liberty. The borrowed stablecoins include USD1 issued by World Liberty itself.

On the regulatory front, Trump-associated entity DT Marks DEFI LLC holds about 38% of World Liberty’s equity and enjoys 75% of the net proceeds from WLFI token sales. Reiners stated that the SEC has the legal authority to investigate World Liberty but questioned whether it can remain independent given the direct financial interests of the president’s family.