In a recent interaction, Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC), has made it clear that digital assets are securities. He asserted that they should be registered with the agency before being offered to investors or meet the requirements to seek exemptions. He also added that exchanges that list cryptocurrencies must register themselves with the regulatory agency. Gensler stressed that the vast majority of crypto tokens meet the investment contract test, and thus, crypto security issuers need to register the offer and sale of their investment contracts with the SEC or meet the requirements for an exemption.
The Cryptocurrency Scene
Gensler described the current cryptocurrency scene as reminiscent of the time before the federal securities laws came into being in 1933. He called it “hucksters, fraudsters, scam artists, and Ponzi schemes” and asserted that the people’s trust in the capital market should not be undermined by allowing unregulated crypto securities markets. He added that the crypto securities markets should not be allowed to harm investors.
Lawsuits Against Binance and Coinbase
The SEC filed lawsuits against Binance and Coinbase for irregularities earlier this week. The charges against Binance include selling unregistered securities (BNB and BUSD) and operating as an unregistered securities exchange and broker-dealer in the US. The lawsuit seeks disgorgement of “ill-gotten funds” and a permanent ban on the firm from operating as a crypto and securities business in the US. The US District Court for the District of Columbia has issued a summons against Binance CEO Changpeng Zhao (CZ), but he has been exempted from in-person appearance. Coinbase was also charged with the commingling of funds, broker-dealer, and clearing house functions. Coinbase CEO Brian Armstrong said, “Regarding the SEC complaint against us today, we’re proud to represent the industry in court to finally get some clarity around crypto rules.”
Gensler rejected the idea that there has been a lack of clarity about whether crypto assets are securities. He said that when crypto asset market participants go on Twitter or TV and say they lacked “fair notice” that their conduct could be illegal, they may have made a calculated economic decision to take the risk of enforcement as the cost of doing business.
The SEC chairman has made it clear that digital assets are securities and should be registered with the agency before being offered to investors. He stressed the role of regulators in cryptocurrency trading and asserted that the people’s trust in the capital market should not be undermined by allowing unregulated crypto securities markets. The SEC filed lawsuits against Binance and Coinbase for irregularities earlier this week, and both companies responded by stating their intention to represent the industry in court to get clarity around crypto rules.