SEC Director of Enforcement Gurbir Grewal Slams Crypto Industry, Cites “Significant Non-Compliance”

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Gurbir Grewal, the Director of the United States Securities and Exchange Commission (SEC)’s Division of Enforcement, took aim at the crypto sector for its “significant non-compliance” regarding crypto regulations Wednesday morning during remarks at Practicing Law Institute’s annual SEC Speaks event.

Grewal Blasts Crypto Sector For Non-Compliance

Grewal began his speech by emphasizing that the SEC decides whether or not cryptocurrencies classify as a security based on the Howey test; a four pronged framework developed by the U.S. Supreme Court designed to parcel out what products may count as “investment contracts,” a.k.a. securities.

While Grewal noted that not every crypto product can be designated as a security, he emphasized that the Howey test was the federal agency’s standard for evaluating cryptocurrencies as well as more traditional “financial offerings.”

“Over the past decade, we have confronted significant non-compliance and many, many creative attempts by market participants to avoid our jurisdiction, with some claiming that we are making it up as we go or regulating by enforcement, and others arguing that we are recklessly exceeding our authorities,” Grewal said.

“We’ve been accused of picking winners and losers, stifling innovation, and driving crypto businesses to more favorable, foreign jurisdictions, wherever they may be,” Grewal continued. “A decade’s worth of verbal gymnastics that are just a backhanded way of saying, ‘we want a different set of rules than those that apply to everyone else.’ 

The SEC’s Controversial Regulatory Approach

Grewal’s comments come amidst public scrutiny of the SEC’s regulation-by-enforcement approach which has seen several crypto businesses such as Ripple, Kraken and Coinbase, faced with hefty litigation.

Critics of the federal agency argue that the SEC has sought heavy-handed enforcement actions in lieu of a clear regulatory framework, potentially driving crypto businesses overseas.

Today is the five year anniversary of the last time the SEC provided constructive guidance on crypto.

Five years.

Enough with the politics. Builders should be allowed to build.

— miles jennings (@milesjennings) April 3, 2024

However, Grewal defended his agency’s stance, highlighting victim impact statements submitted ahead of the March 28th sentencing of disgraced FTX founder Sam Bankman-Fried.

“The victim statements reflect the incredibly broad cross-section of people who were harmed by the fraud that Bankman-Fried was convicted of: single parents, retirees, young people, grandparents,” he said. “People who were forced to sell their home, their car, or take on a second job to make up for their losses.”

A Split Of Opinion At The SEC Over Crypto Regulations?

Despite Grewal’s sentiments, not everyone at the federal agency seems to agree with its current regulatory approach.

On Tuesday, SEC Commissioner Hester Peirce criticized her own agency at the same event where Grewal’s remarks were delivered, claiming the SEC’s tactics were “scaring people off.”

“The stilted communication, half-hearted engagement, quick-draw of enforcement guns, and limited transparency that characterize the Commission’s current relationship with the industry we regulate should concern anyone who cares about this great institution and the amazing markets we regulate,” she stated.

Grewal and Peirce’s comments suggest a chasm between regulators themselves as to how to go about the emergent need for crypto regulations.

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