SEC’s Gensler on $5 Billion Enforcement and Changing Crypto Landscape
[TL; DR]
The SEC has filed more than 780 enforcement actions and over 500 standalone cases in 2023.
Gary Gensler, the SEC Chair, said that the regulatory authority is in the process of reviewing 8 to 10 spot Bitcoin ETF applications.
The SEC has fined BlackRock $2.5 million for inaccurate disclosures.
Introduction
The crypto sector, being a new industry, is still facing regulatory uncertainty. On the other hand, regulatory authorities like the United States Securities and Exchange Commission are working hard to stamp their authority in the sector as well as creating clear crypto legislation.
Although regulatory oversight is essential in protecting the public and investors it should be fair and transparent to promote innovation and creativity which drive the economy forward. Today, we look at the SEC’s recent gains in overseeing the crypto sector as well as the future of crypto market regulation.
SEC’s Legal Enforcement in the US Crypto Sector
In addressing the 2023 Securities Enforcement Forum on 25 October, the U.S. Securities and Exchange Commission (SEC) chair, Gary Gensler, highlighted the SEC’s successful legal enforcement actions during the past few years.
Gensler said that the SEC filed more than 780 enforcement actions and over 500 standalone cases in 2023 alone. As a result, through these judgments and orders the SEC raised $5 billion. Already, it has distributed $930 million to affected investors.
The SEC chair said that since December 2021 the agency filed lawsuits against 40 companies that had violated different crypto market regulations. Also, during the same period the SEC settled recordkeeping issues with 23 firms, showing its commitment to instill discipline and order in the sector.
Primarily, the SEC files lawsuits to prevent firms and individuals from violating the US securities laws. In the process it recovers funds which some companies and individuals get from illegal conduct. It also charges civil penalties on offending firms as a means to force them to comply with securities laws.
According to CoinDesk, the SEC’s enforcement actions have created a “shadow crypto rule” which defines what the regulatory body sees as crypto market regulation. So far, the crypto-related enforcement actions which the SEC has instituted cover a wide array of areas including market manipulation, Cybersecurity breaches, insider trading, fake tweets and public company disclosures failures.
In relation to what the regulatory agency has so far done, the SEC chair said, “Don’t get me started on crypto. I won’t even name all the individuals we’ve charged in this highly noncompliant field.”
SEC Chair Gensler Speaks about Spot Bitcoin ETFs
SEC Chair, Gensler, also confirmed that the Securities and Exchange Commission is currently reviewing 8 to 10 spot bitcoin ETF applications. It is important to note that the SEC is handling 12 spot BTC ETF applications including the ones for Bitwise, WisdomTree, Grayscale, BlackRock, Invesco and Fidelity.
In the meantime, Chair Gensler highlighted that the BTC ETF applications may soon come before the five-member commission. However, he declined to give specific dates for that. In clarifying the situation he said, “They all have different application deadlines.”
In an interview with Bloomberg Gensler added, “What we have in front of us, just so that the viewing public understands, we have not one, but multiple; I think it’s eight or ten filings that the staff, and ultimately the commission, is considering.”
The anticipation for SEC’s approval of several spot bitcoin ETF applications increased when the regulator declined to appeal against the court’s order to review the Grayscale spot bitcoin ETF application.
Read also: SEC Postpones Decision on Spot Bitcoin ETFs from BlackRock
SEC Files Lawsuit against BlackRock
In a related development, the SEC has filed a lawsuit against BlackRock it accuses of failing to disclose investments at a company it was advising. According to the SEC lawsuit, between 2015 and 2019 the BlackRock Multi-Sector Income Trust (BIT) made an investment in Aviron Group, LLC via a lending facility.
Nonetheless, BIT failed to make accurate disclosures in its annual and semi-annual reports when it described Aviron as a ‘Diversified Financial Services’ company.” Such information was inaccurate since Aviron develops print and advertising plans for films. Therefore, the SEC claims that BlackRock misrepresented information to retail and institutional investors.
To this effect, Andrew Dean, the Co-Chief of the Enforcement Division’s Asset Management Unit said, “Retail and institutional investors rely on accurate disclosures of the companies that make up a closed-end or mutual fund’s portfolio to uate a current or prospective investment in the fund.”
He added, “Investment advisers have a responsibility to provide this vital information, and BlackRock failed to do so with the Aviron investment.” In addition, BlackRock falsely reported that Aviron paid a higher interest rate than the actual one.
For such misrepresentation of facts the SEC fined BlackRock $2.5 million. Although BlackRock did not admit or deny the charges it settled the agreement. This lawsuit comes at a time the SEC is reviewing Grayscale’s application for a spot bitcoin ETF.
Gary Gensler’s Perspective on Crypto Regulation
The SEC chair, Gensler’s view of cryptocurrencies has not changed over the years. He believes that most of the cryptocurrencies are securities which the SEC should regulate. At one time, he explained the concept of investment contract and claimed that most cryptocurrencies fit that definition thus passing the investment contract test.
Also, Gensler has compared the existing cryptocurrency environment to the unregulated financial market of the 1920s. However, the SEC chair believes that bitcoin and ETH are different from the other cryptocurrencies. He contends that bitcoin is a commodity and a store of value just like gold. Nonetheless, Gensler has not clarified whether or not ETH is security.
Gensler’s view is that there is a need to classify all cryptocurrencies to have clarity of the regulations that govern them. On the other hand, the SEC maintains that the existing financial and securities law are straightforward and can be applied to cryptocurrencies without further legal clarification.
Currently, the SEC uses the “Howey Test” in its enforcement actions. According to Gensler’s interpretation, “these tokens are securities because there’s a group in the middle and the public is anticipating profits based on that group.”
He also contends that the market has many “incompliances,” a reason why the SEC has a legal right and responsibility to protect investors using the standards that apply to the traditional financial sector.
Read also: SEC’s Appeal and Its Impact on Grayscale Bitcoin ETF Ruling
Implications of Gensler’s Regulatory Stance the SEC’s Enforcement Actions on the Future Crypto Market
Basically, Gensler’s regulatory stance and the SEC’s recent enforcement actions are likely to stifle innovation, research and creativity in the sector. This means that very few crypto firms will be willing to operate in the United States.
Even some international firms that offer crypto products will avoid establishing business units in the United States. As such, they may not allow United States citizens to access their products and services.
Conclusion
During 2023 the United States SEC filed over 700 lawsuits against crypto offenders. From such enforcement actions the regulatory body managed to raise over $5 billion in penalties. The SEC chair Gensler believes that all cryptocurrencies, except bitcoin, are securities because they have teams that develop and “manage” them. On the other hand the individuals or institutions that invest in cryptocurrencies expect to generate profit.
FAQs about SEC
What did Gensler say about crypto?
The United States Securities and Exchange Commission chair, Gary Gensler, said that most cryptocurrencies are securities since they have teams that create and manage them. He singled out bitcoin as a commodity. The SEC uses the Howey Test to determine whether or not a cryptocurrency is a security.
Who is Gary Gensler SEC chief?
Gary Gensler, a former Goldman Sachs investment banker, is the current chair of the United States Securities and Exchange Commission. Born in 1957, Gensler served in various government departments over the past years. For example, he was the chair of the Commodity Futures Trading Commission during former President Barack Obama’s tenure.
How much does Gary Gensler make?
For his role as the chair of the United States Securities and Exchange Commission, Gary Gensler receives a salary of around $32,000 per month. On the other hand, Gensler’s net worth is between $41 million and $119 million.
When did Gary Gensler resign?
Gary Gensler is still the chair of the United States Securities and Exchange Commission. He was appointed the chair in 2018. He is responsible for overseeing the regulation of financial markets and protecting investors.
