Firstly, I doubt his lawyers would say it was "illegal". No precedent. No law on the books regarding bitcoin and securities.
The law doesnt need to mention bitcoin. The law doesnt mention dollar or money either, it mentions "value". For something to be considered a security, it has to be a contract thats tradeable
for value. That bitcoin has value is both obvious and established by a court (cf Pirate's SEC trial).
Further, you would WANT any litigation because if any federal judge said, this is just a virtual game as BTCT stated in their policy blah blah blah then that would be a win for bitcoin. Something the government does NOT want at all.
Thats what Pirate tried and failed. As posted earlier:
Shavers argues that the BTCST investments are not securities because Bitcoin is not money, and is not part of anything regulated by the United States
So Shavers essentially tried to say that Bitcoin is a bauble and that he was taking in digital points and giving out digital points that had no real world value. The prosecutors at the SEC disagree, arguing that Bitcoins are both investment contracts and notes, and, thus, are securities.
..
the judge sided with the SEC, giving Bitcoin his stamp of approval as real world money.http://www.forbes.com/sites/kashmirhill/2013/08/07/federal-judge-rules-bitcoin-is-real-money/