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SEC chief explains why crypto prosecutions will continue

US Securities and Exchange Commission chairman Gary Gensler (File photograph)

A US Securities and Exchange Commission official has reiterated why digital-asset companies will face a hard road trying to argue that digital assets should not be regulated under securities laws.

He has pushed back on critics who claim the SEC is trying to crush the cryptocurrency industry, insisting instead that bad actors were making calculated decisions to flout the rules.

Gary Gensler, the SEC chairman, told a group of capital markets business people that markets ultimately are about trust.

“For 90 years,” he said, “that trust has relied upon compliance with the securities laws. The crypto securities markets should not be allowed to undermine the well-earned trust the public has in the capital markets. The crypto markets should not be allowed to harm investors.”

He made the comments during remarks before the Piper Sandler Global Exchange & Fintech Conference in New York during a virtual keynote address on Thursday.

The SEC just celebrated its 89th birthday on Tuesday, and, in order to make his point, Mr Gensler took his audience back to the signing of the Securities Act of 1933.

President Roosevelt worked with Congress to pass the Securities Exchange Act of 1934 to regulate securities intermediaries, such as exchanges and broker-dealers. It was the same legislation that also created the SEC.

Mr Gensler said the securities laws were enacted to regulate investments, including specifically “investment contracts”.

He said: “The vast majority of crypto tokens meet the investment contract test. Not liking the message isn’t the same thing as not receiving it.

“These tokens have teams promoting them with websites and Twitter accounts. Investors may even meet the entrepreneurs.

“These tokens are not coming out of thin air. They are not growing out of the ground like corn or wheat.

“That they’re digital doesn’t differentiate them from huge swaths of the capital markets, where securities and currencies already are digital.”

And Mr Gensler added: “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.“

Following on, he said, if most crypto tokens are subject to the securities laws, so should most crypto intermediaries.

That means securities exchanges, brokers and dealers, and clearing agencies must register or satisfy requirements for an exemption.

The SEC is facing a barrage of criticism after suing two of the world's largest crypto exchanges, Coinbase and Binance, claiming they broke securities laws for not registering with the SEC. Both companies have denied the allegations, but the SEC has gone to court to freeze the US assets of Binance, accusing the world’s largest cryptocurrency exchange of mishandling customer funds and lying to American regulators and investors about its operations.

Mr Gensler is now expected to face congressional pressure as some officials believe SEC aggression is impeding legislative efforts to develop a separate framework for crypto regulation.

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Published June 12, 2023 at 7:57 am (Updated June 12, 2023 at 7:57 am)

SEC chief explains why crypto prosecutions will continue

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