SEC Task Force Kicks Off ‘A New Beginning’ for Crypto Enforcement

The Securities and Exchange Commission’s (SEC) Crypto Task Force began its journey towards creating rules of the road for crypto with a roundtable on Friday, bringing together a dozen prominent industry attorneys for a discussion about how to proceed with the regulation of the industry.

The March 21 event, the “Spring Sprint Toward Crypto Clarity,” kicked off a series of roundtables about “How We Got Here and How We Get Out—Defining Security Status.”

It is, according to crypto task force Chair Hester Peirce, “a new beginning” and a “restart of the Commission’s approach to crypto regulation” as enforced under former Chairman Gary Gensler.

That approach was what many in the industry called regulation by enforcement, in that the only way the agency expressed its opinions on the regulatory regime crypto firms had to abide by was with lawsuits.

Acting SEC Chairman Mark Uyeda agreed, saying that “when judicial opinions have created uncertainty for market participants in the past, the Commission and its staff have stepped in to provide guidance. This approach of using notice-and-comment rulemaking or explaining the Commission’s thought process through releases – rather than through enforcement actions – should have been considered for classifying crypto assets under the federal securities laws.”

A Different Perspective

Whichever approach was used, the “economic reality” of the industry is that “the people buying crypto are not collectors,” said John Reed Stark, a former SEC attorney. “We all know that they are investors, and the mission of the SEC is to protect investors. Whether you’re talking about eel farms, ostrich farms, or orange groves, the whole point of securities regulation was to wrap that up into a very broad, principles-based regulation.”

Miles Jennings, general counsel for venture capital firm a16z, agreed about principles-based regulation in general; he just had a problem with principles-based regulation as enforced by the SEC under the previous regime.

Speaking of the agency’s three missions, Jennings said, “It did not lead to investor protection, it did not lead to capital formation, and it did not lead to efficient markets. As a result of that, the current approach is clearly a failure, and we have to do better now.”

Looking at the Gensler approach, Jennings added, “I don't think that anyone could credibly argue that the last administration's approach to the industry has accomplished any of the SEC's objectives.”