Securities and Exchange Commission Chairman Gary Gensler went on the offensive Thursday, saying the giant cryptocurrency exchanges targeted by the SEC were “fairly notified” before being sued this week.
“When crypto-asset market participants say on Twitter or on TV that they lack ‘fair notice’ that their conduct may be illegal, don’t believe it,” Gensler said in a speech at the Piper Sandler Global Exchange & Fintech Conference.
“They may have made a calculated commercial decision to accept enforcement risk as a cost of doing business.”
On Monday, the SEC sued the world’s largest crypto exchange, Binance, for violating securities laws, misusing customer funds and misleading investors. On Tuesday, it sued Coinbase Global (COIN), the largest U.S. crypto exchange, alleging it also violated securities laws by acting as an exchange, broker, and clearing house without registering with the agency.
Coinbase CEO Brian Armstrong has publicly opposed the SEC, saying the regulator has not responded to attempts to register with the SEC to address concerns and gain clarity on the rules.
The company’s chief public policy officer, Faryar Shirzad, made the same argument to Yahoo Finance in March.
“There is no way to register,” he said during the March interview. “We’ve tried, but there’s just no way to do it.” And indeed, we’ve filed a petition with the SEC [last] June, where we listed the specific issues the agency would need to solve for crypto platforms to participate and register.”
The basis for the SEC’s complaints is that certain crypto assets that Binance and Coinbase offered their customers were securities and therefore subject to SEC jurisdiction.
Gary Gensler, Chairman of the Securities and Exchange Commission. (` Photo/Jacquelyn Martin)
On Thursday, Gensler said the SEC has for years provided guidance to markets on what constitutes a crypto asset security, citing a 2017 report and the “Framework for ‘Investment Contract’ Analysis of Digital Assets.” ‘ the SEC official from 2019.
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He also said that crypto-collateral issuers could apply for an exemption from the rules, noting that the agency has had rules governing how issuers could do so for decades.
Coinbase has urged the US to develop clear rules tailored to the crypto industry, but Gensler said Thursday the SEC has already done so.
He said existing SEC rules would be applied to platforms trading crypto-asset securities, including so-called “DeFi” computer systems. He also referenced a proposed rule to update the SEC’s custody rule for investment advisors to cover all crypto assets and improve protection.
Gensler also reiterated that the vast majority of crypto tokens already meet the investment treaty test, citing securities laws passed by Congress that define a security, as well as the so-called Howey test, which grew out of a 1946 Supreme Court case.
“Again, these crypto entities know the rules,” Gensler said. “As Binance’s Chief Compliance Officer bluntly put it to a colleague in 2018:”[w]We operate as a fucking unlicensed securities exchange in the US, bro.”
Gensler added, “Disliking the news is not the same as not receiving it…More than 100 commission decisions, settled lawsuits, and court decisions have also clarified when a token offering and sale constitutes a security.”
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