Securities Exchange Commission Chairman Gary Gensler and the crypto community don’t have the best rapport. He’s gone on record multiple times to claim jurisdiction over every cryptocurrency, save for Bitcoin, which he considers a commodity. The SEC sued Ripple Labs in 2020 for offering XRP as an unregistered security. Notably, billionaire investor Mark Cuban is a vocal critic of Gensler’s enforcement of securities law regarding cryptocurrency. And unsurprisingly, in an interview, Ripple Labs CEO Brad Garlinghouse called the lawsuit a “gross overreach” on SEC jurisdiction. With that said, is the SEC, especially Chairman Gary Gensler, out to destroy crypto?
The SEC prefers “regulation by enforcement”
A Forbes op-ed points out that the SEC practices “regulation by enforcement” rather than providing clear guidelines to avoid lawsuits. For context, the Commission’s crypto division has filed 200 suits since its creation in 2017. Of those lawsuits, nearly 90% settled out of court, and less than half targeted crypto fraud. Consequently, the article points out the SEC’s enforcement actions are “arbitrary and capricious.”
More recently, LBRY CEO Jeremy Kauffman slammed the SEC at Mainnet 2022. Like Ripple, the SEC sued LBRY, a blockchain-based filesharing service, for offering an unregistered security. LBRY uses proprietary crypto called LBRY Credits to upload files onto the service and make payments on the platform.
The SEC alleges LBRY raised $11 million through LBRY credit sales before the network existed. However, Kauffman rejects these claims entirely, retorting they sold no LBRY credits before the network went live. Kauffman is now running for a Senate seat in New Hampshire on a pro-crypto platform. The verdicts in the LBRY and Ripple labs cases have massive implications for future crypto regulation.
The SEC’s argument for securities regulation in crypto
Former federal prosecutor James K. Filan broke down the SEC’s argument in the Ripple case on Twitter in layman’s terms. Essentially, the Commission claims that though XRP itself isn’t a security, any sale of XRP is an investment contract. Therefore it is functionally a security.
Regardless, the SEC and Ripple called for a judge to make a ruling on the case without a court battle. The decision will leave a lasting impact on crypto regulation for years to come. If a judge rules the SEC indeed has jurisdiction over crypto, could it spell disaster for digital currency?