- The US Securities and Exchange Commission Chair (SEC) Gary Gensler’s speech provoked a Ripple executive.
- SEC framework is far from the “necessary” change.
- Why is SEC vs. Ripple a high-impact case?
YEREVAN (CoinChapter.com) – The SEC Chair Gensler presented a speech at the Securities Enforcement Forum in Nov 2021. The annual conference included numerous finance, banking, jurisprudence, and law enforcement representatives.
On Jan 13, Mr. Gensler shared his speech on social media, which prompted mixed reactions from his followers. Blockchain company Ripple’s General Counsel Stuart Alderoty had a lot to say on the matter, given that Ripple’s legal battle with SEC is far from over. So what provoked the executive?
Gary Gensler’s speech
Chair Gensler addressed the SEC’s Enforcement Department and pinpointed the importance of following through to misconduct on behalf of market participants.
Think about a football game without referees. Teams, without fear of penalties, start to break the rules. The game isn’t fair, and maybe after a few minutes, it isn’t fun to watch.[…] It is critical that our enforcement program has tremendous breadth, be nimble, and penalize bad actors so we discourage misconduct before it happens.commented the Chair.
He used several analogies to get his point across. However, the underlying idea remained the same. The SEC has an obligation to the public; thus, it has to smack down attempts to defy the law.
While the idea does not raise questions, the law itself is not clear on defining where cryptocurrencies lie and how the sector should be regulated. Former SEC Commissioner Hester Peirce voiced this problem several times in 2019-2020.
She called the agency to “fill the gap between regulation and decentralization” to facilitate innovation through a “new regulatory framework.”
No change of framework?
Mr. Gensler, however, hinted at cryptocurrencies not being what they seem.
There’s an old saying: “When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.”Sometimes, people focus on labels. For example, we hear terms like “decentralized finance” (DeFi), “currency,” or “peer-to-peer lending.” It can seem easy to take these words at face value.
Make no mistake: regardless of the label or purported mission, we will be looking at the economic realities of a given product or arrangement to determine whether it complies with the securities laws. Some market participants may call this “regulation by enforcement.”added Mr. Gensler
In hindsight, the definition of cryptocurrencies in the letter of the law became one of the cornerstones in the SEC vs. Ripple case. The law enforcement agency deemed Ripple’s token XRP as securities and accused the company and its executives of fraud after selling $1.3 billion worth of XRP as allegedly “unregistered securities.” The battle has been ongoing since Dec 2020.
SEC vs. crypto market
The mentioned lawsuit prompted Mr. Alderony’s frustration with Chair Gensler’s speech, as the former found it flawed.
The truth is the SEC uses regulation by enforcement to create an uneven playing field and picks winners/losers according to opaque rules they make up as they go along.Added the executive.
While Mr. Gensler said that “it’s about protecting investors,” Ripple’s General Counsel believed the SEC doesn’t base the regulation “on the law or the facts.”
His speech says, “A high-impact case pulls many other actors back from the line.” Does that sound like regulation by enforcement to anyone else?! The SEC intends that the mere filing of a case chills behavior – regardless of whether they are right on the law or the facts.commented Mr. Alderoty.
The SEC Chair also recited an old saying: “justice delayed is justice denied.” However, it rings hollow, as another hearing in the SEC vs. Ripple case was delayed for another month. Furthermore, SEC vs. Ripple is a high-impact case. Its outcome could influence the rest of the crypto market.
Delaying the process could be against the interests of both parties.