The past few years at the Securities and Exchange Commission (SEC) have been tough for innovators during the tenure of Chairman Gary Gensler. When Gensler was selected to lead the top financial regulator, hopes were high that his extensive experience in markets and understanding of Fintech – including Blockchain, would usher in a new era of financial innovation and inclusion. Those hopes were soon dashed upon the harsh reality of a Commission focused more on politics and issues that are typically not the responsibility of the SEC. Gensler’s management compelled some insiders to describe the SEC as the “anti-capital formation” Commission. Digital asset innovators were stymied by his policy shortcut of regulation by enforcement, squandering a massive opportunity to become a transformative financial regulator – one who sought to propel US leadership into the world of digital assets – including digital securities.
While Gensler is expected to exit the agency soon, CI contacted several crowdfunding insiders to inquire about what we may anticipate from the SEC once new leadership takes over.
Doug Ellenoff, Managing Partner of the law firm of Ellenoff, Grossman, and Schole (EGS), a recognized crowdfunding OG and industry advocate, said:
“Obviously, the speed and expressions of change will be determined in part by the specific new replacement, but directionally, I believe that the impact of deregulation will be seismic. Crypto markets have already shared their considered views. The activity level of capital formation transactions will accelerate off of a nicely forming 2024 base. I would fully expect broad support for many crowdfunding changes to advance and expand it as a useful marketplace. I would begin to push now.”
Crowdfund Capital Advisors (CCA) founder and Principal Sherwood Neiss forwarded a link to a post that outlined his opinion on the new administration. Neiss is another crowdfunding OG who helped craft the JOBS Act of 2021, which legalized online capital formation. Neiss believes a second Trump administration holds great promise for the investment crowdfunding industry.
“With the right combination of policy shifts—such as increased funding caps, reduced regulatory burdens, and tax incentives for startups—investment crowdfunding could continue its upward trajectory, supporting job creation and local economic growth nationwide. As venture capital activity picks up and SEC reform allows for more expansive crowdfunding opportunities, the industry is well-positioned to become a cornerstone of America’s small business and manufacturing revitalization.”
Mario Lattuga, General Counsel at Republic, the largest securities crowdfunding operator in the world, concurred that enormous change will occur for the better as the Commission shifts focus from regulation by enforcement to innovation and access to capital. Republic is also active in the digital asset sector – a segment of capital formation they would like to expand.
“This is going to be a seismic shift and dramatic transformation in the way we know crypto in the US. As you know, Gensler likes regulation by enforcement. A lot of companies have gone offshore to structure offerings so they do not touch the US… Panama, the Caymans, etc. This dramatically increases the cost to get a company up and running,” said Lattuga.
He said the approach during the current administration has been the antithesis of how the country expects the government to treat startups and support innovation.
“With the shift, we will see a much more robust crypto market in the US. Even lawyers will soon advise their clients that launching a token offering in the US is no longer a death sentence. This also means a surge in Reg A offerings, which will no longer be a graveyard of token offerings. We will also see a lot more offerings using Reg CF.”
At one point, Reg A was viewed as a preferred path for token offerings, but it quickly became clear that even a mention of crypto or blockchain meant an offering would not be qualified by the SEC. Lattuga noted that there has been a lot of discussion regarding whether there is no path to registration for digital asset issuance, but registration is a “subset of capital formation,” and he expects you will soon be able to use the full stack of exemptions.
Lattuga said he is “super bullish on where we are going.” We will see digital asset firms return to the US, where everything started. “This is huge—a confluence of events … the biggest thing in the crypto for years,” adding that top law firms always act conservatively, but with legal clarity, attorneys can guide their clients.
Lattuga did note that there remains a balance between relevant disclosure and access to capital. He said you may see some more bad actors cropping up, believing they will be able to get away with more, but it is not back to the wild-west ICO days.
Legal clarity should also guide FINRA in approving broker-dealers who want to offer digital asset services. In general, the incoming Trump administration is a big win for digital asset and Fintech innovators as the industry can expect a green light to operate in the US – in a legal and compliant manner.
