SEC Chair Gary Gensler addressed the ongoing regulatory challenges facing the cryptocurrency industry during his speech at the Piper Sandler Global Exchange & Fintech Conference on June 8. He expressed his belief that the crypto community’s request for “regulatory clarity” lacks substance and defended the enforcement actions taken by his agency.
Gensler reiterated his straightforward approach and dismissed the notion that existing securities laws are insufficient to govern digital assets. He quoted Justice Thurgood Marshall’s decision in the Supreme Court case of Reves, highlighting that the purpose of enacting securities laws was to regulate investments regardless of their form or name. Gensler pointed out that the definition of a security encompasses various items, including the term “investment contract.” He also referred to the Supreme Court’s flexible interpretation of a security in SEC v. W.J. Howey Co., emphasizing the need for adaptability to address the ever-evolving schemes used by those seeking investment from others.
Furthermore, Gensler countered arguments that securities law from the 1930s cannot accommodate blockchain technology. He acknowledged the influence of Satoshi Nakamoto’s innovation on the development of crypto assets and blockchain ledger technology. However, he stressed that regardless of the type of ledger used, be it a spreadsheet, a database, or blockchain, the economic realities of the investment are paramount when determining its nature.
Gensler emphasized that the language used to label an investment contract does not change its fundamental nature. He cited numerous Supreme Court cases to support his assertion that the economic realities of a product, rather than its labels, determine its classification as a security under securities laws.
Addressing claims of “fair notice,” Gensler cautioned against deceptive tactics employed by certain participants in the crypto market. He disputed the idea that these participants lacked awareness of the potential illegality of their conduct, stating that they knowingly accepted the risk of enforcement as a cost of doing business.
Despite his firm stance, Gensler acknowledged the possibility of a compliant crypto sector operating within U.S. law. He argued against the notion that compliance was unachievable under existing rules. Gensler stressed the importance of genuine effort and substantial changes to comply with securities laws, rather than superficial compliance or mere lip service.
Gensler’s remarks at the conference highlighted his commitment to applying securities laws to the cryptocurrency industry. He emphasized the need to consider economic realities when assessing investments and called for genuine compliance with existing regulations.
