Gary Gensler had strong words for the crypto industry in a speech Thursday, telling an audience of lawyers that the “vast majority” of the nearly 10,000 cryptocurrencies in existence are securities, issued to the public in violation of federal laws.
“The investing public buys or sells crypto security tokens because they expect profits to come from the efforts of others in a joint venture,” the SEC chairman said in prepared remarks, paraphrasing the definition of “security.” ” in US jurisprudence.
Gensler took aim at those in the industry who say existing securities laws are incompatible with cryptocurrencies and who called for a new set of rules tailored specifically for the industry.
He argued that through statements and dozens of enforcement actions, the Securities and Exchange Commission has made it clear how existing law applies to the industry and that there are no such rules.
“Not liking the message is not the same as not receiving it,” Gensler said.
“These are not laundry brands. Promoters market and the investing public buys most of these tokens, advertising or expecting profits based on the efforts of others,” he added.
Gensler said investors deserve disclosure to help them sort through which investments they think will either thrive or flop.
“Investors deserve to be protected from fraud and manipulation. The law requires these protections,” he said.
The SEC has added to its enforcement staff dedicated to protecting investors in the cryptocurrency market, announcing in May that it is adding 20 new positions to its new Crypto Assets and Cyber Unit, nearly doubling its size.
Gensler specifically called out crypto exchanges and other intermediaries during the speech, arguing that they should register with the SEC as securities exchanges and as broker-dealers.
Coinbase Global Inc. coins,
the largest publicly traded crypto exchange, said in its most recent quarterly report that the company is under investigation by the SEC and has received questions about how it chooses which digital assets to list and how it classifies them.
The SEC filed charges in July against a former Coinbase product manager for insider trading, tracing nine tokens it claims are securities that were listed on the exchange. Coinbase said it disagreed with the SEC’s classification.
In February, cryptocurrency lending platform BlockFI agreed to pay $100 million for failing to sign up for the service.
Gensler said the SEC should come up with new procedures for registering crypto exchanges because they also offer custodian and broker-dealer services, unlike standard stock exchanges.
Crypto exchanges also differ from stock exchanges in that they can offer both securities and commodities on the same platform, and Gensler said he has instructed staff to “sort out how we can better enable” investors to trade both on the same stock exchange.