Former New York Fed examiner: WLFI linked to Trump may issue unregistered securities

On May 8, Lee Reiners, a lecturer at the Duke University School of Law and a former examiner at the New York Federal Reserve Bank, said in a blog post that World Liberty Financial, a decentralized finance agreement closely connected to the Trump family, may have issued unregistered securities, and that the WLFI token should fall under scrutiny by the U.S. Securities and Exchange Commission (SEC).

Reiners’ Core Analysis: The Howey Test and WLFI’s Legal Characterization

According to Reiners’ blog post, the WLFI token issuance meets the core elements of the “Howey Test” that the SEC uses to determine whether an asset is an investment contract. Reiners wrote: “WLFI is not a decentralized commodity. It is a governance token under the Trump brand, sold for the purpose of funding a centralized crypto business. If the SEC’s interpretation means anything, then it should apply here.”

Reiners noted that World Liberty sold about 25 billion WLFI tokens in multiple rounds of public presale (total supply of 100 billion tokens), and that the tokens were sold before the World Liberty protocol was established, using the Trump family’s prominence for promotion. Buyers are likely to invest with a reasonable expectation of profits. Reiners cited SEC guidance stating: “The SEC’s interpretation particularly emphasizes the importance of issuer marketing, the importance of white papers and official communications, and the commitment to developing a crypto system that can reasonably generate an expectation of profits.”

According to Reiners’ blog post, Justin Sun filed a lawsuit, claiming that despite giving strong early support to World Liberty, World Liberty froze his tokens and stripped him of his governance rights. Reiners wrote: “If Justin Sun’s allegations are true, then it indicates that World Liberty has comprehensive unilateral control over WLFI. This also raises an obvious question: Is WLFI an unregistered security?”

WLFI’s Use Structure and Decentralization Doubts

According to Reiners’ article, the WLFI token is also used in clearly proprietary trading. World Liberty used 5 billion WLFI tokens as collateral to borrow about $75 million in stablecoins via the Dolomite lending agreement, and part of the borrowed tokens are stablecoins USD1 issued by World Liberty itself. Dolomite co-founder Corey Caplan also serves as an adviser to World Liberty.

According to a report by The Block, at the end of last month World Liberty initiated a governance process that will unlock billions of presale tokens over about four years. Several presale investors expressed dissatisfaction with this process, saying they have almost no say in the governance process.

DT Marks DEFI LLC Shareholding Structure and Interest Ties

According to information on the World Liberty website, the entity DT Marks DEFI LLC, which is associated with the Trump family, holds about 38% of World Liberty and is entitled to receive 75% of the net proceeds from WLFI token sales. According to The Block, in early 2026, World Liberty sold shares for $500 million to an entity associated with Sheikh Tahnoun bin Zayed Al Nahyan, and the entity acquired 49% of the shares from the agreement.

According to The Block, MGX, an Abu Dhabi state investment company, used the USD1 stablecoin issued by World Liberty to complete a $8B investment in Binance. The deal took place before Zhao Changpeng, the former CEO of Binance, who had pleaded guilty in relation to federal financial violations, was pardoned by President Trump.

In his blog, Reiners wrote about the SEC’s regulatory stance: “The SEC has the authority to investigate World Liberty. But do they have enough integrity and independence to investigate a crypto company in which a president and his family directly hold shares? Unfortunately, recent history suggests the answer is no.”

FAQ

What are the main reasons Lee Reiners says WLFI qualifies as an unregistered security?

According to Reiners’ May 8, 2026 blog post, based on factors including: the tokens being sold before the agreement was established, the use of the Trump family’s prominence for promotion, and that buyers are likely to have a reasonable expectation of profits—these factors meet the core elements of the SEC’s Howey Test.

What is the shareholding structure of World Liberty’s DT Marks DEFI LLC?

According to information on the World Liberty website, DT Marks DEFI LLC holds about 38% of World Liberty and is entitled to receive 75% of the net proceeds from WLFI token sales; in early 2026, World Liberty sold 49% shares to an entity related to the United Arab Emirates emirate, for $500 million.

How is Justin Sun’s lawsuit related to the decentralization doubts about WLFI?

According to Reiners’ blog post, Justin Sun filed a lawsuit, claiming that World Liberty froze his tokens and stripped him of his governance rights. Reiners said that if the allegations are true, then it shows that World Liberty has comprehensive unilateral control over WLFI, further supporting the view that WLFI may be an unregistered security.