SEC Chair Steps up Crypto Crusade, Sends Message to CFTC

Securities and Exchange Commission (SEC) Chair Gary Gensler on Monday (May 16) told an audience during the 2022 FINRA annual conference that until there is better regulation on the crypto space, the agency will “continue to be a cop on the beat.”

The speech came after a crypto crash last week which saw the price of TerraUSD stablecoin and Luna drop. The losses are extending to other stablecoins and cryptocurrencies this week, with Tether, the world´s largest stablecoin, losing 9% of market value after briefly losing peg against dollar.

“I’m going to use this opportunity to talk not just to the audience in the room but to the investing public. This space, crypto markets, is a highly speculative asset class,” Gensler said.

Gensler said those who buy crypto don’t usually get the disclosures that come with asset purchases of other kinds, including things like whether the trading platform is trading against them, or whether they own the assets they store in digital wallets.

The chairman also used this platform to reiterate that certain tokens, at least the ones he was referring to, are securities. The key difference between a commodity and security when it comes to digital tokens is the raising of money by a third party, Gensler argued.

“Many of these entrepreneurs come up with an idea, and they want to raise money from you. And that puts it inside of the securities laws,” Gensler explained. “And we can get legal about it. But it comes down to this, if somebody is raising money from the public and the public’s anticipating a profit based on those entrepreneurs, that’s under the securities laws.”

His claims aren’t new, but the place and timing for the remarks are probably not a coincidence. Rostin Behnam, chairman of the Commodity Futures Trading Commission (CFTC), will participate tomorrow in the same event, with the same host and the same topic. Behnam has previously offered his views about what digital assets may constitute a commodity and he has expressed his disposition and the agency he supervises to take on additional crypto oversight. Additionally, Tuesday (May 17), Sen. Cynthia Lummis, a crypto-friendly lawmaker, will speak at an American Enterprise Institute event on crypto regulation. The senator is expected to introduce shortly a bill to regulate the crypto space, including a more detailed allocation of responsibilities between the SEC and the CFTC for crypto oversight.

Gensler continued his talk at FINRA by saying that “the crypto asset space is not that decentralized.” This means that there are a handful of major trading venues and a handful of major lending venues where the public trade or invest, he said. The chairman didn’t mention any specific rulemaking the agency is working on, but he said the SEC is looking into basic market integrity rules, including not front running your customer, anti-fraud and anti-manipulation.

He also warned investors that ownership of tokens is misleading in the crypto space. “Don’t think you own your tokens when you go into a digital wallet and transfer ownership to a platform. And if the platform goes down, you’re just having a counter-party relationship with the platform, so get in line in bankruptcy court,” he said.

The overall message was that investors are still vulnerable given the lack of “fair” disclosures, and the agency will continue taking enforcement actions until better regulation is in place.

Read more: SEC's Peirce Anticipates Stablecoin Regulations in Wake of Terra Tumble