The Securities and Exchange Commission (SEC) isn’t backing down on cryptocurrency regulation by enforcement.
While the crypto industry has criticized the SEC for failing to engage in formal rulemaking or waiting for Congress to pass a clear legal framework around U.S. securities laws and their applicability to digital assets, the agency under its present chair, Gary Gensler, has continued to bring singular enforcement actions as a way to set regulatory policy.
In 2022, the Gensler-led agency brought a total of 30 cryptocurrency-related enforcement actions, up 50% from 2021.
In the first months of 2023, the SEC has handed out 13 enforcement actions, which is on pace for an increase of more than 25% over last year’s numbers.
Along with shifting the focus from individual tokens to trading platforms that cater to U.S. investors, Gensler has separately increased the number of enforcement attorneys in the SEC’s crypto unit — a move that observers say indicates the SEC chair intends to execute further charges in the coming months as his agency casts as wide a net as possible.
The SEC’s 43 actions in the past 16 months represent more than 30% of the agency’s entire history of 140 crypto-related enforcements, going back to the SEC’s first-ever crypto enforcement action in July 2013.
The most frequent charges levied by the agency were tied to unregistered securities offerings (73%), alleged fraud (70%) or both (50%), and, not counting this year’s actions, represent $2.61 billion in total settlements and penalties.
Read also: SEC Chair Gensler Defends Crypto Crackdown in Contentious House Hearing
Industry observers, along with market participants, are increasingly of the view that federal regulators will continue to come down heavily on larger crypto companies to set precedents for new regulation this year.
“We are 100% committed to the U.S. because rule of law prevails here,” Coinbase CEO Brian Armstrong told investors on the company’s first-quarter 2023 earnings call Thursday (May 4), going on to emphasize that it is “really important for America to get this [crypto regulation] right.”
From the SEC’s perspective, it has already gotten regulation right — and companies need to acknowledge that prevailing fact by coming into compliance.
“Given that most crypto tokens are securities, it follows that many crypto intermediaries are transacting in securities and have to register with the SEC,” Gensler told the House Financial Services Committee last month, adding that the crypto industry currently entails “risks and conflicts the commission does not allow in any other marketplace.”
Gensler explained at the time to the assembled lawmakers that the SEC has “a clear regulatory framework built up over 90 years … [Crypto companies] don’t have a choice. They’re noncompliant, generally, and they need to come into compliance.”
But Gensler’s views on crypto are not without their detractors, among both policymakers and within the SEC chair’s own agency.
“To date, the SEC has forced digital asset market participants into regulatory frameworks that are neither compatible with the underlying technology nor applicable…,” wrote members of the congressional Financial Services committee in a letter to Gensler.
“A commission serious about regulating — and not destroying — this market would reflect on this near unblemished record of regulatory failure and do something about it,” said SEC Commissioner Hester Pierce in a dissent titled “Rendering Innovation Kaput.”
See also: Hearings on Crypto’s Regulatory Gaps Do Little to Fill Them
Coinbase has helped spearhead the industry’s response to SEC scrutiny, repeatedly asking the agency for clarity on what the applicable regulatory framework for various digital assets is.
“The U.S. can’t afford to fall behind on this important technology that can update the financial system and keep 1 million jobs in America,” Armstrong said Thursday. “Our preferred path would be for Congress to take action to provide clear rules of the road for the industry, including giving authority to the SEC, CFTC, and other regulators to regulate our industry as part of a cohesive regulatory framework.”
While Gensler has frequently said he believes “everything else other than bitcoin is a security,” the SEC itself hasn’t codified this position. A new lawsuit from Coinbase aims to change that.
Since last July, Coinbase has been asking the SEC to reply in turn to its comprehensive petition letter for SEC rulemaking requesting the commission “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods, including potential rules to identify which digital assets are securities.”
Coinbase Chief Legal Officer Paul Grewal tweeted Wednesday (May 3) that the SEC was ordered by a U.S. court to file its response to Coinbase within 10 days. That means some certainty may be on the horizon, but adherence to that certainty may be another matter entirely.
The Third Circuit just issued a text-only order directing the SEC to file a response to our mandamus petition within 10 days (and gave us 7 days for a reply). Here’s the text of the order:
TEXT ONLY ORDER (Clerk) At the direction of the Court, Respondent is ordered to file an…
— paulgrewal.eth (@iampaulgrewal) May 3, 2023
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