SEC chief highlights crypto enforcement issues for legal experts

US Securities and Exchange Commission Chairman Gary Gensler cited major enforcement actions against crypto firms as part of the “economic realities” of securities regulation.

In written remarks to the Practicing Law Institute’s Annual Institute on Securities Regulation on Nov. 2, Gensler used examples of SEC enforcement against crypto-lending firm BlockFi and a former Coinbase employee to justify the agency’s actions regarding violations of U.S. securities laws. Under Gensler, the SEC would take a “treat like cases alike” approach to enforcement actions regardless of the form of securities, funds or investors.

“When BlockFi failed to register the offering and sale of a crypto loan product, and made materially false and misleading statements about those securities, we charged them,” Gensler said. “When a former Coinbase executive and others allegedly misused confidential information to buy crypto-asset securities, we charged them.”

According to the SEC chairman, the commission’s enforcement staff consisted of “public officials” and “police on the beat” who “combined public zeal with unusual capacity.” The SEC filed more than 700 enforcement actions against firms as of Sept. 30, resulting in approximately $4 billion in civil penalties from $6.4 billion obtained from judgments and injunctions.

“Fraud is fraud, regardless of the types of investors you defrauded and the types of securities used in the fraud.”

However, Gensler reiterated his “come in and talk to us” message for firms offering financial products, giving them a chance to “collaborate with [the SEC’s] investigation and remediation [their] bad behavior.” The SEC chairman suggested that enforcement against crypto firms would likely remain within the commission’s scope in 2023 in his May budget request.

Related: Investors love SEC crackdown on crypto industry: survey

Many in and out of the crypto space have criticized the SEC for taking a “regulation by enforcement” approach in its cases against crypto firms — for example, labeling nine tokens as “crypto-active securities” in a July complaint against a former Coinbase product manager .

The outcome of the 2022 midterm elections in the United States – either in a lame-duck session of Congress or starting in January 2023 – could affect whether proposed bills on the Commodity Futures Trading Commission and the SEC’s roles overseeing crypto.