The Securities and Exchange Commission is drawing criticism for regulating by enforcement instead of providing a clear regulatory framework.
The Securities and Exchange Commission declared today in a court filing that nine tokens listed on Coinbase were securities, prompting strong criticisms from the crypto industry over the agency’s regulatory approach.
“Regulation by Enforcement”
The SEC is drawing the ire of observers.
In a complaint filed today in an insider trading scheme case involving a former Coinbase employee and two co-conspirators, the Securities and Exchange Commission (SEC) announced that “at least” nine of the cryptocurrencies listed on Coinbase were securities. The crypto industry was prompt to criticize the filing as a flagrant example of “regulation by enforcement.”
The tokens categorized as securities in the complaint were Flexa’s AMP, Rally’s RLY, DerivaDEX’s DDX, XY Labs’ XYO, Rari Capital’s RGT, the Liechtenstein Cryptoassets Exchange’s LCX, Power’s POWR, DFX Finance’s DFX, and Kromatika Finance’s KROM. All of these tokens are issued on the Ethereum blockchain.
The filing marks one of the few instances where specific crypto coins were deemed to be securities by the agency. The SEC has refused in the past to clarify many cryptocurrencies’ regulatory status while continuously arguing that crypto tokens need to be brought under the purview of securities regulations.
Coinbase responded to the SEC’s complaint with a blog post petitioning it to create a regulatory framework for cryptocurrencies “guided by formal procedures and a public notice-and-comment process, rather than through arbitrary enforcement or guidance developed behind closed doors.”
Commodities Futures Trading Commission (CFTC) commissioner Caroline Pham was equally critical of the SEC in a letter posted on Twitter. “The case SEC v. Wahi is a striking example of ‘regulation by enforcement’,” Pham wrote before claiming the SEC’s claims could have “broad implications” beyond the case itself.
Her sentiment was echoed by Blockchain Association policy head Jake Chervinsky, who stated the case was a “mess” that would likely require “nine mini-trials” to determine if each token cited in the filing really was a security.
Only two days ago, Rep. Tom Emmer (R-MN) slammed the SEC in a congressional hearing for “using enforcement to expand its jurisdiction,” calling the agency “power-hungry” and “hellbent” on achieving its political goals at the expense of the crypto industry.
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.
