SEC Chairman Gary Gensler Seeks to Address Crypto Regulatory Gap
Nominated by President Biden in February of this year and sworn into office as the newly confirmed Chair of the Securities & Exchange Commission (SEC) on April 17, 2021, Gary Gensler brings with him significant background and experience in the futures and commodities arena, as well as financial services consumer protection. From 2017-2019, Gensler served as the chair of the Maryland Financial Consumer Protection Commission, and previous to that, he was chair of the U.S. Commodity Futures Trading Commission (CTFC) from May 2009 until January 2014.
Just three months into his tenure as SEC Chair, Gensler’s early areas of focus suggest that he will make significant efforts to bring about increased regulatory oversight to one of this era’s hottest investing trends, namely cryptocurrencies. Gensler, in his capacity as SEC Chair, already possesses certain regulatory oversight as to any cryptocurrencies deemed securities, as opposed to mere tender, or currency.
When it comes to cryptocurrencies, they are generally defined as either (1) utility tokens which take the form of tender to effect the purchase or sale of goods or services, or alternatively, (2) security tokens which represent an equity share of a company that would fall within the ambit of SEC regulation as a security. The ability of the SEC to regulate myriad securities products, which includes security tokens reliant upon blockchain technology, relates back to the Supreme Court’s 1946 Howey decision, a seminal case setting forth the broad definition of a security, thus helping define those transactions which constitute an investment contract.
Under Gensler’s view of cryptocurrency, Bitcoin does not qualify as a security, but is a mere virtual currency. Conversely, other cryptocurrencies such as that being offered by Ripple, are properly classified as securities because of the nature of their offering (as an Initial Coin Offering, or ICO) and what “sure seems like a common enterprise” when it comes to Ripple, according to Gensler.
Furthermore, in a televised CNBC interview in May 2021, Gensler commented on the fact that when it comes to a cryptocurrency such as Bitcoin, he believes that greater regulatory oversight and investor protection is required, conceding that at present “we don’t have a federal regime overseeing the crypto exchanges.” Thus, current investors in Bitcoin as a digital token are afforded scant protections from either the SEC, or its sister agency, the CFTC, which regulates commodities and futures. While the CFTC does have some limited anti-fraud and anti-manipulation authority, there is no current federal authority to actually bring a regulatory regime to crypto-exchanges, such as for Bitcoin transactions.
In the coming months ahead, cryptocurrency investors and enthusiasts alike will surely be interested in how Gensler seeks to address what he views as a “regulatory gap” (at least at the federal level) for cryptocurrencies such as Bitcoin. Ultimately, of course, it will likely be necessary for Congress to pass meaningful legislation providing a framework for regulatory oversight of utility digital assets such as Bitcoin and various crypto-exchanges at the federal level. As Gensler has stated, he would like for Congress “to bring investor protection to the [crypto] platforms, where these sometimes-commodities, sometimes-securities are trading on the platform.”
The attorneys at Giarrusso Law Group LLC have extensive experience with handling all manner of claims related to investment losses. Investors may pursue claims to recover monies through securities arbitration through the Financial Industry Regulatory Authority (FINRA) or, in some instances, through litigation. Investors who wish to discuss a possible claim may contact our office by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation to learn more about their legal rights.