September 8, 2022

SEC Chair Gensler Says "Vast Majority" of Crypto Tokens Are Securities

Steven Lofchie Commentary by Steven Lofchie

SEC Chair Gary Gensler contended that the "vast majority" of cryptocurrency tokens on the market are securities subject to SEC regulation.

In a speech at the Practising Law Institute, Mr. Gensler said that the majority of cryptocurrencies are securities because "the investing public is buying or selling crypto security tokens because they're expecting profits derived from the efforts of others in a common enterprise." As such, he maintained that issuers need to provide full and fair disclosure to investors, in accordance with federal securities laws.

Further, Mr. Gensler said that because crypto tokens are securities, crypto intermediaries are implicit issuers of securities and thus must register with the SEC in some capacity, whether as exchanges or broker-dealers. He warned that because crypto intermediaries often commingle other functions with a market, investors are inherently exposed to a natural conflict of interest. To address this, Mr. Gensler encouraged staff to work with intermediaries to ensure each function is registered separately.

Mr. Gensler acknowledged that "[g]iven the nature of crypto investments . . . it may be appropriate to be flexible in applying existing disclosure requirements. Tailored disclosures exist elsewhere — for example, asset-backed securities disclosure differs from that for equities."


This may be the first time that Chair Gensler acknowledged that the disclosure requirements applicable to digital assets are not necessarily the same as those applicable to other securities. This is in contrast to his oft-repeated position that "like must be treated as like"; i.e., there is no allowing for differences. As previously observed:

In the real world of financial regulation, similar financial products are not necessarily treated identically. There are different types of regulation for U.S. government securities, agency securities, municipal securities, corporate bonds, commercial paper, preferred debt, preferred equity, convertible bonds, investment company securities, corporate equities, asset-backed securities and on and on. Like is not identical.

The reality is that certain digital assets have features truly distinct from other types of securities. This does not mean that they ought to be free from regulation. It does mean that the SEC should be obligated to consider the unique characteristics of certain of these assets rather than falling back on "like must be treated as like."

So attention should be paid to Mr. Gensler's recognition that not all securities must be regulated identically. Perhaps something will come of Mr. Gensler's moving away from "like must be treated as like."

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