SEC Lawsuits Against Cryptocurrency Companies Raise Questions About Industry’s Future

SEC Lawsuits Against Cryptocurrency Companies Raise Questions About Industry’s Future


The US Securities and Exchange Commission filed lawsuits last week against the world’s largest cryptocurrency exchanges, Binance and Coinbase, deepening tensions between the government and a volatile industry that has been hit by scandals and market crashes.

Binance and coin base Both are alleged to have violated the law by operating as stock exchanges without registering their businesses with the SEC. Binance faces additional charges, along with its CEO, of diverting client funds to a separate business, among other accusations. Most recently, the SEC asked a federal judge to freeze the assets of Binance’s US platform.

The lawsuits are the latest in an ongoing dispute between government officials who describe the crypto industry as the ” Wild West”, and creators of digital assets that seek to legitimize cryptocurrency as a currency of the future.

Industry leaders say that with their latest actions, US regulators are signaling more clearly that they seek to ensure that cryptocurrencies have no place in the traditional financial system.

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And the major regulators are more open about their thoughts on the merits of cryptocurrencies. SEC Chairman Gary Gensler told Bloomberg on Tuesday: “We don’t need any more digital currency…we already have digital currency, it’s called the US dollar.”

What results from the legal battle could greatly slow the growth of the crypto industry or, alternatively, restrict the scope of the SEC’s regulatory authority.

Federica Pantana, an attorney at Davidoff Hutcher & Citron in New York who handles SEC cases, has been watching the episode unfold and is now clear with her crypto clients in the interim: “With the SEC embracing a strong compliance agenda, we will not There is no doubt that companies should consider crypto assets to be securities and the platforms that exchange these assets should accept this.”

Whether companies that trade cryptocurrency decide it makes business sense to register with the SEC, or go out of business altogether, will determine the landscape of the industry moving forward, Pantana said. The repercussions of the litigation could drive some companies out of business, he said.

The cryptocurrency industry already knew that it was under the spotlight of Washington regulators and politicians. The collapse of cryptocurrency prices last year, as well as the demise of several notable cryptocurrency companies, including FTX, exposed investors to billions of dollars in losses. Gensler has repeatedly stated, both before Congress and in public appearances, that he believes the SEC has more than enough authority to regulate the industry.

Treasury Secretary Janet Yellen told CNBC on Wednesday that she is “very supportive” of the SEC using the tools it has to protect consumers and investors.

Despite increased scrutiny from regulators, the crypto industry hoped that Congress would eventually step in and help legitimize the industry through new laws. Several bills have been introduced last year by Democrats and Republicans who would have placed cryptocurrencies under the authority of the Commodity Futures Trading Commission and made other products, including stablecoins, more legitimate by standardizing what assets those products could hold.

Yellen said Wednesday that she sees “some holes in the system where I think additional regulation would be appropriate and we’d like to work with Congress to get additional legislation passed.”

Crypto lobbyists now believe that such laws are more urgently needed to prevent the SEC from moving forward with their lawsuits.

The most viable piece of legislation lies in the House Financial Services Committee, led by Rep. Patrick McHenry, RN.C., who chairs the panel. The legislation was co-authored by Glenn Thompson, Republican of Pennsylvania, chairman of the House Agriculture Committee.

His bill debate seeks to delineate the jurisdiction of agencies over certain digital assets and “strike the right balance between protecting the consumer and fostering responsible innovation,” McHenry said in a press release.

The new legislation would grant issuers of digital assets an exemption from securities laws if they meet certain conditions and would exclude digital commodities and payment stablecoins from the definition of a security under securities laws, among many other provisions. .

“Congress has no choice but to carefully move forward with legislation to clear up this confusion,” said Kristin Smith, executive director of the Blockchain Association.

Perianne Boring, founder of the Chamber of Digital Commerce, one of the top lobbyists for the cryptocurrency industry, said that the lawsuits the SEC filed against Binance and Coinbase are “arbitrary and capricious” and that “the SEC’s vigorous enforcement in this space is politically motivated, opening a legal risk against the SEC.”

He said Gensler’s public comments on the merits of cryptocurrencies in the context of the traditional financial system go beyond the scope of his role as SEC chairman to protect consumers and investors.

“They are not a merit regulator,” Boring said.

SEC and White House representatives did not respond to Associated Press requests for comment.

Sweet reported from New York.

Copyright 2023 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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