During a speech on June 8 at the Piper Sandler Global Exchange & Fintech Conference, Gary Gensler, Chair of the United States Securities and Exchange Commission (SEC), drew a parallel between the present-day crypto market and the U.S. stock market of the 1920s. Gensler emphasized the prevalence of “hucksters,” “fraudsters,” and “Ponzi schemes” within the crypto market.
He suggested that similar to how Congress addressed issues in the stock market through the implementation of securities laws, the SEC can utilize these regulations to effectively address concerns within the crypto market.
Throughout the discussion, Gensler expressed admiration for the Securities Act of 1933 and Securities Exchange Act of 1934, asserting that these legislations contributed to the prosperous state of the U.S. securities markets for the past 88 years. He contended that the current “crypto securities markets” should likewise enjoy the advantages offered by these laws, as they are equally deserving of the protections they provide.
Gensler highlighted the relevance of a court ruling involving the Telegram Open Network to assert that crypto asset securities cannot evade securities laws, irrespective of any utility they may possess. While acknowledging that promoters of such assets argue for their tokens having functionality beyond being mere investment vehicles, Gensler pointed out that court decisions, including the Telegram case, have made it clear that even if crypto asset security serves an additional purpose, it still falls within the definition of an investment contract and is subject to securities regulations.
According to Gensler, cryptocurrency security exchanges are obligated to adhere to securities regulations, which include the necessity to separate the functions of the exchange, broker-dealer, and clearing. Gensler believes that such separation helps reduce conflicts that may arise from combining these services. He refuted the notion that this separation is impossible and instead stated that it requires effort to achieve.
Gensler believes that ensuring compliance with the law by crypto securities issuers is the solution to combat scams. He argues that markets, where issuers and intermediaries neglect to adhere to fundamental laws, are more susceptible to such fraudulent activities.
As the chair of the SEC, Gensler has faced significant criticism from the crypto industry, particularly due to the SEC’s legal actions against crypto exchanges Binance and Coinbase. Critics contend that he holds an excessively broad interpretation of the SEC’s regulatory power and is stifling innovation in the United States.
