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In light of the lawsuits filed against Binance and Coinbase, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has expressed his stance regarding the digital asset class. He emphasized that these are securities, nothing less, during a recent discussion.
According to a CNBC report, he stated that they must be registered with the agency prior to being offered to investors or fulfill the criteria to apply for exemptions. He also mentioned that exchanges listing cryptocurrencies are required to register with the regulatory body.
Crypto Tokens are Investment Contracts
“Congress included a comprehensive list of over 30 items in the definition of a security, including the term ‘investment contract’…. the vast majority of crypto tokens satisfy the investment contract criteria. … Therefore, issuers of crypto securities must register the offering and sale of their investment contracts with the SEC or comply with the conditions for an exemption,” Gensler stated.
He made these remarks remotely at the Piper Sandler Global Exchange and FinTech Conference in New York City on June 8.
“Hucksters. Fraudsters. Scam artists. Ponzi schemes. The public left in line at the bankruptcy court.”
This is how the SEC Chair characterized the current cryptocurrency landscape, likening it to the period before the establishment of federal securities laws in 1933.
Emphasizing the importance of regulatory oversight in cryptocurrency trading, Gensler asserted that public confidence in the capital market should not be compromised by permitting unregulated crypto securities markets.
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“The crypto securities markets should not be permitted to erode the well-deserved trust the public has in the capital markets. The crypto markets should not be allowed to endanger investors,” he added.
The SEC chair also dismissed the notion that there has been ambiguity regarding whether crypto assets qualify as securities.
“When participants in the crypto asset market claim on Twitter or TV that they lacked ‘fair notice’ that their actions could be illegal, do not believe it. … They may have made a calculated economic choice to accept the risk of enforcement as a cost of doing business.”
Lawsuits Against Binance and Coinbase
Pointing to irregularities, the SEC initiated lawsuits against Binance and Coinbase earlier this week. The allegations against Binance include the sale of unregistered securities – BNB and BUSD – as well as functioning as an unregistered securities exchange and broker-dealer in the U.S.
The lawsuit seeks the recovery of “ill-gotten funds” and a permanent ban on the firm from operating as a crypto and securities business in the U.S. In response to the SEC’s legal action, the U.S. District Court for the District of Columbia has issued a summons for Binance CEO Changpeng Zhao (CZ). However, CZ has been excused from appearing in person.
Specifically, the two exchanges were charged with the commingling of funds, broker-dealer, and clearing house functions. Binance was also accused of mixing funds. In response to the news, Coinbase CEO Brian Armstrong stated, “Regarding the SEC complaint against us today, we’re proud to represent the industry in court to finally get some clarity around crypto rules.”
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