Gensler’s Invitation to Crypto Firms to Meet with SEC ‘Rings Hollow,’ Executives Say

The SEC chairman’s latest comments on crypto regulation failed to move the needle for industry participants on more specific parameters, signaling continued confusion and the growing likelihood of further enforcement.

Gary Gensler wrote in an article in the Wall Street Journal last Friday that recent market events – such as crypto lenders freezing investor accounts or going bankrupt – underscore the importance of bringing the weight of securities regulations to crypto.

“There is no reason to treat the crypto market differently than the rest of the capital markets just because it uses a different technology,” Gensler wrote.

Jackson Mueller, director of policy and government relations at blockchain technology company Securrency, said Gensler’s opinion piece reiterates points the SEC chief has been making since he took the helm of the agency in April 2021.

“The recent statement does not shed new light on the SEC’s position, but only reinforces the chairman’s view that the activities and platforms are brought within a regulated setting and that the current regulations are sufficient to encapsulate this activity,” Mueller told Blockworks.

Gensler mentioned the SEC’s settlement with BlockFi, for example, noting that the crypto company’s lending product was considered a security. BlockFi agreed in February to pay $100 million in fines.

“We note the demand in the crypto and DeFi markets for more specificity from the Chairman on how to proactively comply without lengthy reviews or the risk of subsequent enforcement,” Mueller said.

More recently, the regulator accused a former Coinbase employee, along with his brother and friend, of insider trading last month. The SEC alleged in the complaint that nine different crypto-tokens are securities.

Regulation by enforcement will continue in the absence of concrete crypto legal frameworks, industry leaders and lawyers have told Blockworks, as regulators seek to shine a spotlight on investor protection issues.

Gensler: Come and talk to us

The SEC chief said in the Wall Street Journal statement that he encourages crypto borrowers to “come in and talk to SEC staff.”

“Gary Gensler’s insistence that crypto companies meet him at the table rings hollow, when past meetings have been followed by investigations, subpoenas and threats of lawsuits,” said Kristin Smith, executive director of the Blockchain Association.

Dallas Mavericks owner Mark Cuban also opposed Gensler’s call for companies to meet with the regulator in a Monday tweet.

“Come in and talk to who? How to set up an appointment? Do you use Calendly these days?” he tweeted. “Since you understand crypto lending/finance, why don’t you just publish clear line guidelines you want to see and open it up for comments?”

Cuban’s NBA team partnered with now-bankrupt crypto lender Voyager Digital last year. He was named as a defendant, along with Voyager CEO Stephen Ehrlich and the Mavericks, in a lawsuit filed earlier this month that categorized Voyager as a “massive Ponzi scheme.”

The search for concrete rules

The SEC “continues to force a round stick through a square hole” by subjecting crypto companies to regulations that don’t make sense for the industry, Smith said.

The Digital Commodities Consumer Protection Act, proposed earlier this month by Sens. Debbie Stabenow, D-Mich., and John Boozman, R-Ark., are proposing that the Commodity Futures Trading Commission (CFTC) should control crypto spot markets.

John Collins, a partner at crypto and fintech policy firm FS Vector, said Gensler’s indication that the SEC would be the “police on the beat” stood out.

“[That] reads to me that more enforcement actions are coming and that he has no appetite to share jurisdiction over these products, projects or anything else with the CFTC,” Collins told Blockworks.

Although other crypto-related legislation has been proposed, such as the Responsible Financial Innovation Act – introduced by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, DN.Y., in June — industry watchers have said they don’t expect any crypto bills to pass until 2023.

“We have long supported a comprehensive regulatory framework to lay out clear rules for crypto companies,” Smith said. “But so far, Gensler’s actions have sung a different tune than his words.”

Get today’s best crypto news and insights delivered to your inbox every night. Subscribe to Blockworks’ free newsletter now.