In preparation for Remarks At the Piper Sandler Global Exchange & Fintech Conference on June 8, SEC Chairman Gary Gensler spoke at length about ongoing regulatory issues regarding the cryptocurrency industry, arguing that community assistance crypto on “regulatory clarity” lacks merit and defending his agency’s enforcement actions.
Gensler said he had been straightforward in his approach, once again dismissing the notion that existing securities laws are inadequate to govern digital assets.
“The purpose of Congress in enacting the securities laws was to regulate investments, whatever their form and name,” Gensler said, citing Justice Thurgood Marshall’s ruling in the Supreme Court’s Reves case.
“Congress has included a long list of more than 30 elements in the definition of a security,” he continued, “including the term ‘investment contract’.” He cited the flexibility of the Supreme Court in defining a title in SEC vs. WJ Howey Co.: “It embodies a flexible, rather than static principle, capable of adapting to meet the myriad and variable schemes devised by those who seek to use other people’s money on the promise of profit.”
He also countered arguments that 1930s securities law could not encapsulate blockchain technology:
“Satoshi Nakamoto’s innovation has spurred the development of crypto assets and the underlying blockchain ledger technology. However, regardless of the ledger used, be it a spreadsheet, database or blockchain technology, when investors put their money at risk, it is the economic realities of investing that matter.
“Economic Realities”
Gensler emphasized in his speech that the language used to label an investment contract does not change what it is fundamentally. “Over decades of cases,” he said, “the Supreme Court has made it clear that the economic realities of a product – not the labels – determine whether it is a title in under securities laws.”
Responding to claims of “fair notice,” Gensler warned of dishonest tactics employed by some crypto market participants. He said, “When crypto asset market participants go on Twitter or on TV and say they haven’t been given ‘reasonable notice’ that their conduct might 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 Chairman left space in his speech for a crypto sector compliant with US law, objecting to the idea that compliance was “not possible” under existing rules:
“I disagree with the idea – and recent history refutes it – that compliance of crypto intermediaries is not possible. I acknowledge — and, again, I think it is appropriate — it takes work. It’s not just about “submitting (the) desire to comply with applicable laws” or looking for a series of meetings with the SEC where you don’t want to make the necessary changes for you comply with securities laws.
