SEC’s Gensler rejects ‘regulatory clarity’ arguments in speech on crypto regulation

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Upland: Berlin Is Here!

In pre­pared remarks at the Piper San­dler Glob­al Exchange & Fin­tech Con­fer­ence on June 8, SEC Chair Gary Gensler addressed the ongo­ing reg­u­la­to­ry issues sur­round­ing the cryp­tocur­ren­cy indus­try at length, argu­ing that the cryp­to community’s assis­tance on “reg­u­la­to­ry clar­i­ty” lacks mer­it and defend­ing his agency’s enforce­ment actions.

Gensler said he has been straight­for­ward in his approach, reject­ing once again the notion that exist­ing secu­ri­ties laws are inad­e­quate to gov­ern dig­i­tal assets.

“Congress’s pur­pose in enact­ing the secu­ri­ties laws was to reg­u­late invest­ments, in what­ev­er form they are made and by what­ev­er name they are called,” Gensler said, quot­ing Jus­tice Thur­good Marshall’s deci­sion in the Supreme Court case of Reves.

“Con­gress includ­ed a long list of 30-plus items in the def­i­n­i­tion of a secu­ri­ty,” he con­tin­ued, “includ­ing the term ‘invest­ment con­tract.’” He cit­ed the Supreme Court’s flex­i­bil­i­ty in the def­i­n­i­tion of a secu­ri­ty in SEC v. W.J. Howey Co.: “It embod­ies a flex­i­ble, rather than a sta­t­ic, prin­ci­ple, one that is capa­ble of adap­ta­tion to meet the count­less and vari­able schemes devised by those who seek the use of the mon­ey of oth­ers on the promise of profits.”

He also coun­tered argu­ments that secu­ri­ties law from the 1930s could not encap­su­late blockchain technology:

“Satoshi Nakamoto’s inno­va­tion spurred the devel­op­ment of cryp­to assets and the under­ly­ing blockchain ledger tech­nol­o­gy. Regard­less, how­ev­er, of the ledger being used, be it a spread­sheet, a data­base, or blockchain tech­nol­o­gy, when investors put their mon­ey at risk, it’s the eco­nom­ic real­i­ties of the invest­ment that matter.”

‘Economic realities’

Gensler empha­sized in his speech that the lan­guage used to label an invest­ment con­tract does not alter what it fun­da­men­tal­ly is. “Across decades of cas­es,” he said, “the Supreme Court has made clear that the eco­nom­ic real­i­ties of a product—not the labels—determine whether it is a secu­ri­ty under the secu­ri­ties laws.”

Address­ing claims of “fair notice,” Gensler cau­tioned against the disin­gen­u­ous tac­tics employed by some cryp­to mar­ket par­tic­i­pants. He stat­ed, “When cryp­to asset mar­ket par­tic­i­pants go on Twit­ter or TV and say they lacked ‘fair notice’ that their con­duct could be ille­gal, don’t believe it. They may have made a cal­cu­lat­ed eco­nom­ic deci­sion to take the risk of enforce­ment as the cost of doing business.”

Still, the SEC chair allowed room in his speech for a cryp­to sec­tor that com­plies with U.S. law, argu­ing against the idea that com­pli­ance  was “not pos­si­ble” under exist­ing rules:

“I dis­agree with the notion—and recent his­to­ry dis­proves it—that cryp­to inter­me­di­ary com­pli­ance isn’t pos­si­ble. I do recognize—and, again, think it’s appropriate—that it takes work. It’s not just a mat­ter of “pay­ing lip ser­vice to [the] desire to com­ply with applic­a­ble laws” or seek­ing a bunch of meet­ings with the SEC dur­ing which you’re unwill­ing to make the changes need­ed to com­ply with the secu­ri­ties laws.”


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