SEC boss Gary Gensler has few regulatory points on crypto: lawyer

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Gary Gensler’s ambition to regulate the cryptocurrency Wild West is on a collision course with something he cannot regulate: more than seven decades of case law.

This was the consensus among the securities attorneys I spoke with following Genslers’ statement last week that one of his ambitious goals as chairman of the Securities and Exchange Commission is to secure the booming cryptocurrency market, even for your grandma.

Of course, we all want to make the world a better place, and with something as new as crypto there has to be a lot of fun going on. However, even the most well-meaning utopian goals of the left, whether it be our beleaguered Governor Cuomo imposing strict COVID lockdowns on religious activities, or Gensler’s idealized version of capitalism, still fall within the purview of the government. a higher authority.

In the Cuomos case, he clashed with the US Constitution, which remained sacrosanct during a pandemic as ruled by the Supreme Court. For Genlser, his decades of securities law, including the historic Securities Act of 1933 which prescribes what he can and cannot do as chairman of the SEC.

The result, experts say, is that a sweeping crackdown on anything crypto-related is something he really can’t do.

You would think Gensler would know from the start. President Biden snatched him from the top echelons of academia, MIT, where he lectured on financial matters, including the nascent and burgeoning market for digital coins that could become an alternative to the U.S. banking system.

Gensler was a longtime Wall Street executive and partner at Goldman Sachs, and worked in government, most notably as chairman of the Commodity Futures Trading Commission (CFTC). In other words, Gensler has real knowledge of the markets.

He is not a lawyer either. And although it has become fashionable to denigrate lawyers, Gensler has a job that requires knowledge of legal precedents and the law to avoid unfair prosecution and prosecution against the wild goose.

Worse yet, Gensler is also blinded by a deeply progressive ideology that seeks to control every square inch of business, which it sees as evil and dangerous territory for the average investor.

The extent of the evil in the $ 2 trillion crypto market is a matter of debate. Its supporters will tell you that the real evil lies in the unnatural alliance between the banking system and the Federal Reserve, which uses Wall Street to create money out of thin air, thereby debasing our currency.

Cryptocurrencies are a way to preserve value by allowing people to do business seamlessly through a blockchain network that bypasses the fraud, abuse, and costly middlemen of the traditional banking system.

Who can regulate what goes on inside the blockchain and in the wider world of crypto is still a matter of debate, securities lawyers tell me. Certainly, the CFTC has a say because cryptos are more closely aligned with commodities than they are with, say, stocks or bonds. Perhaps the Treasury Department, since blockchain is an alternative to the banking system and cryptos compete with dollar-based transactions.

But securities lawyers have told me that the uber-regulator of crypto is definitely not the SEC, which can only regulate so-called securities, a stock or bond or some type of financial instrument. that looks like one or the other.

It doesn’t matter that cryptos can be traded like a stock. Baseball cards can be traded as an action. Stocks and bonds represent an underlying investment, that is, the profits or losses of a business. In most cases, cryptos, like baseball cards, don’t, which is why you never see the SEC carrying business when kids (or someone else) scam people when they exchange them.

I called the folks at Genslers to help me better understand how he plans to crack down on something so new on a large scale and, at least according to experts, something that seems largely outside his jurisdiction. At the time this column is in press, he still has not responded.

The Securities and Exchange Commission has no legal authority to regulate the baseball card trade, never cryptocurrencies. The Fresno Bee via AP

So I asked a great securities lawyer, who spoke to me in the background, probably because he is still hoping to dissuade Gensler from a wild goose hunt.

His response: He will try to carry a lot of stuff but he has limited authority.

As the chairman of the SEC, can’t Gensler just see digital currencies as security and let the games begin? This is exactly what the SEC led by Jay Clayton did when it filed a lawsuit against a company called Ripple Labs for issuing digital currency which the commission said was unregistered securities.

No, the securities lawyer said. There are 75 years of case law to prevent this.

Good point. The Ripple case is hardly a slam dunk, with the courts still weighing whether the SEC exceeded its jurisdiction by taking legal action in a business area perhaps best regulated by Gensler’s former store, the CFTC.

The smart, shady financial guys have and will concoct fraudulent crypto derivatives to create an investment product that could fall under the jurisdiction of the SEC, so I’m sure Gensler will find a way to file a complaint.

Nonetheless, his big and broad crackdown on the crypto trading Wild West will likely have to wait for an act of Congress to give it powers that go beyond the current law, which he said he is also seeking.

Nothing like putting the cart before the horse.

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