In prepared remarks at the Piper Sandler Global Exchange & Fintech Conference on June 8, SEC Chairman Gary Gensler elaborated on the ongoing regulatory issues surrounding the cryptocurrency industry, arguing that the crypto community’s help in terms of “clarity of the regulations” has insufficient merit and the enforcement of his agency defended actions.
Gensler said he was straightforward in his approach, again rejecting the idea that existing securities laws are inadequate to regulate digital assets.
“Congress’s purpose in enacting the securities laws was to regulate investments in whatever form they are made and whatever name they are called,” Gensler said, citing Judge Thurgood Marshall’s decision in the case of the Supreme Court. Citing Reves Supreme Court.
“Congress included a long list of over 30 items in the definition of a security,” he continued, “including the term ‘investment contract’.” He cited the Supreme Court’s flexibility in defining a security SEC v WJ Howey Co.: “It embodies a flexible rather than a static principle, one that can adapt to the myriad and variable schemes devised by those who want to use other people’s money with the promise of profit.”
He also refuted arguments that 1930s securities law could not include blockchain technology:
“Satoshi Nakamoto’s innovation spurred the development of crypto assets and the underlying blockchain ledger technology. Regardless of the ledger used, be it a spreadsheet, database or blockchain technology, when investors put their money at risk, it is the economic reality of the investment that matters.
‘Economic reality’
Gensler stressed in his speech that the language used to label an investment contract does not change what it essentially is. “In decades of cases,” he said, “the Supreme Court has made it clear that a product’s economic reality — not its labels — determines whether it is a security under securities laws.”
Gensler addressed claims of “fair notice” and warned against the disingenuous tactics employed by some crypto market participants. He stated: “If crypto asset market participants say on Twitter or TV that they have not ‘correctly’ pointed out that their behavior could be illegal, don’t believe that. They may have made a calculated economic decision to view the risk of enforcement as the cost of doing business.
Still, the SEC chairman’s speech left room for a crypto sector to be compliant with US law, arguing against the idea that compliance was “not possible” under the existing rules:
“I do not agree with the idea – and recent history disproves it – that compliance by crypto intermediaries is not possible. I 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 looking for some meetings with the SEC in which you are not willing to make the changes necessary to comply with securities laws.”
