SEC’s Gensler rejects ‘regulatory clarity’ arguments in speech on crypto regulation
"The vast majority of crypto tokens meet the investment contract test," the SEC chair said. "Not liking the message isn’t the same thing as not receiving it."
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.”
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.”