“Most crypto tokens are investment contracts under the Supreme Court’s Howey Test.”
SEC Chairman Gary Gensler is not wavering from his view that most all crypto assets are securities. Gensler has consistently voiced this belief queueing up expectations for a growing number of enforcement actions targeting allegations of firms issuing unregistered securities.
In a speech delivered today to the International Swaps and Derivatives Association Annual Meeting, Gensler stated:
“The fact is, most crypto tokens involve a group of entrepreneurs raising money from the public in anticipation of profits — the hallmark of an investment contract or a security under our jurisdiction. Some, probably only a few, are like digital gold; thus, they might be like commodities. Even fewer, if any, are actually being used in general commerce for payments.”
He then added that if a Swap is based on crypto that is a security then it is a security-based Swap that must be registered with the SEC. Gensler stated that whether the platform is centralized or decentralized, offering crypto assets and crypto asset-based Swaps means they must “work within our securities regime.”
The SEC recently announced that it had rebranded its cyber unit to the Crypto Asset and Cyber Unit while doubling its head count as it ramps up its digital asset enforcement actions. His strong opinions have rattled some within the digital asset industry as they see SEC leadership as displaying little flexibility in regards to Fintech innovation. Missing any federal legislation, crypto-asset issuers and investment platforms may soon be compelled to adhere to existing securities law or find themselves in a battle with a regulator with unlimited resources.
Former SEC Attorney at the Division of Enforcement Jerome Tomas recently told CI:
“As I suspect many in the industry fear that any gaps in the interpretation of the securities laws will be used against them, under the practice we refer to as “regulation by enforcement.”