In a stern warning to the crypto industry, Securities and Exchange Commission (SEC) chairman Gary Gensler emphasized the urgent need for comprehensive regulation to address the rampant fraudulent activities plaguing the sector.
Speaking at the Piper Sandler Global Exchange and FinTech Conference, Gensler drew parallels between the current crypto frenzy and the 1920s securities market, asserting that the industry is infested with “hucksters, fraudsters, and scam artists.”
Gensler stressed that the vast majority of crypto tokens are securities and fall within the SEC's jurisdiction. The SEC chairman also rebutted claims from the crypto industry, asserting that the SEC has failed to define what constitutes a security. Gensler pointed out that the definition of a security includes investment contracts, and most crypto tokens meet this criterion. He emphasized that crypto security issuers must register their investment contracts with the SEC or qualify for an exemption.
The SEC recently took legal action against two major exchanges, Binance and Coinbase, accusing them of unlawfully offering securities services without proper registration. The agency alleged commingling of assets by both exchanges, highlighting their disregard for investor protection.
Furthermore, Gensler condemned crypto exchanges that failed to separate themselves from broker-dealer functions. He expressed disbelief that such behavior would be tolerated if it occurred in traditional financial markets and emphasized the importance of upholding investor safeguards, such as fraud prevention measures, proper disclosures, and customer asset segregation.
When questioned about the need for comprehensive crypto legislation, Gensler did not provide a direct response but dismissed the argument that regulatory clarity is lacking. He emphasized that not agreeing with the regulations does not equate to a lack of clarity. This echoes his comments made as a response to similar criticism in a video posted on Twitter on April 27.
At the same time, Coinbase, after waiting for months without any response from the SEC to their request for a cryptocurrency rulebook in July 2022, decided to take matters to court by filing a lawsuit against the regulatory agency. On June 6, the SEC was given a one-week deadline by a US appeals court to respond to Coinbase's rulemaking petition.
While Gensler did not address allegations that he offered to advise Binance in 2019, he did highlight the pressing issue of market structure and payment for order flow rules. He revealed that the proposed rules had received 20,000 comment letters, but he refrained from providing a specific timeline for their implementation.