How Are Crypto Firms Responding to US Regulators’ Enforcement Actions?
US regulators, including the Securities and Exchange Commission (SEC), have ongoing civil cases against major cryptocurrency companies such as Binance, Coinbase and Ripple, but not every company has been treated equally.
Gary Gensler, who has been SEC Chairman since 2021, has been widely criticized by many lawmakers and industry leaders for his “regulation by enforcement” approach to crypto companies and offerings. Some of the cases ended up in federal court to decide what could be considered a security in the United States, and not all of the judges’ decisions were necessarily in favor of the regulator.
The Commission filed a lawsuit against Ripple in December 2020 over XRP as an alleged unregistered offering, but received a partial summary judgment in July that the token was largely not a security. Coinbase, which appeared to be facing legal action prior to the SEC’s lawsuit filed in June, took aim at the regulator in response to its case, claiming the exchange had attempted to “come in and register” without success or without adequate feedback.
Prometheum, a crypto company that received widespread media attention in June after co-CEO Aaron Kaplan testified before the House Financial Services Committee on digital asset regulation, received specialty broker-dealer approval from the Financial Industry Regulatory Authority (SPBD) for digital assets in May. Some of the company’s subsidiaries, which also trade in digital assets, have successfully registered with the SEC.
“Prometheum was specifically designed to comply with federal securities laws and create the first digital asset security trading platform subject to these laws, including investor protection regulations,” Kaplan told AskFX.
Kaplan’s approach seems to suggest that certain firms such as Coinbase, Binance and Ripple have launched services in the US to try to change existing regulations. Big players have sometimes pushed for laws favorable to crypto firms: Coinbase CEO Brian Armstrong has been a regular presence in Washington DC, encouraging users to support political candidates who support pro-crypto policies.
According to Prometheum’s co-CEO, certain crypto companies have “worked to rewrite or change existing laws to their benefit and to the detriment of retail investors,” speculating that the current framework is not suitable for dealing with digital assets. Many industry leaders and lawmakers have expressed similar concerns, claiming that crypto firms in the US face an uphill battle when it comes to recognizing which digital assets are considered securities.
Kaplan hinted that Prometheum could obtain an SPBD license was evidence that legal compliance was at least possible. However, the approval has led to advocacy groups, including the Blockchain Association and crypto-focused members of Congress, calling for an investigation into the company.
“We fear that [SEC] Prometheum has granted a ‘sweetheart’ deal in return for supporting the Commission’s policy objectives or that Prometheum is using personal relationships with the Commission to gain an unfair market advantage,” he said the Blockchain Association in July. “Most importantly, we are concerned that Chairman Gensler is using Prometheum and the SPBD licensing process as a means to thwart Congressional legislative efforts by continuing to spread the false narrative that the law regarding digital asset securities already exists”
Kaplan added:
“From the moment Prometheum received its SPBD license, there has been what appears to be a concerted effort by various industry associations and legislators to leverage the six-plus years of hard work we have put in”
It is unclear whether Prometheum’s approach will benefit existing players in This area will work to avoid enforcement actions, or for emerging business projects aware of the regulatory challenges in the United States. David Hirsch, head of the SEC’s crypto enforcement division, reportedly said at a conference on September 19 that although the commission is currently embroiled in several civil lawsuits, it will continue to pursue lawsuits against firms that it believes violate U.S Violating securities laws – including decentralized finance projects.
Gensler will testify before the U.S. House Financial Services Committee on September 27 in a hearing on SEC oversight. According to a Sept. 22 memo, lawmakers will question the SEC chairman on issues including digital asset custody policies and expanding the commission’s authority over crypto firms.
