SEC Chair Gensler Decries Noncompliance, Touts SEC Role as "Prosecutors of Dishonesty"
Commentary by Steven Lofchie
SEC Chair Gary Gensler identified areas of noncompliance in the securities markets, advocating for holding bad actors accountable by "prosecut[ing] dishonesty."
In his remarks before the 2023 Securities Enforcement Forum, Mr. Gensler underscored "wide-ranging noncompliance" in the crypto asset securities markets and failures in recordkeeping as a significant problem, along with firms failing to maintain or preserve off-channel communications.
He highlighted the widespread noncompliance in the crypto asset securities markets, leading to fraud, scams, bankruptcies and money laundering. He emphasized that most crypto assets likely meet the investment contract test, making them subject to securities laws. Another issue Gensler pointed out was the lack of accountability among individuals and firms. He stressed the importance of holding bad actors accountable, including through bars, penalties, injunctions, undertakings and litigation where appropriate.
To address these issues, among others, he advocated for: (i) holding individuals and firms accountable for their actions, (ii) focusing on high-impact cases to change behavior and bring greater compliance with the law, (iii) ensuring fairness and timeliness in the process of bringing matters to resolution and (iv) holding those in positions of trust accountable for abusing the public's trust in the markets.
Commentary
It is possible to take an alternative view on both the recordkeeping issue and the crypto issue, even accepting that in both cases there are violations of law.
As to recordkeeping, there are instances where the technology for communications ran ahead of the technology for recordkeeping. While firms were deservedly sanctioned for the violations, the penalties seemed disproportionate to those violations.
As to the crypto space, there is no doubt significant amounts of fraud and there is no doubt that there should be regulation. However, the rules that the SEC has available to regulate crypto simply don't work and the SEC has made no effort to develop rules that do.