SEC Threatens Crypto Trading Company with Enforcement Actions
Commentary by Rachael Hashmall
In a regulatory filing, a cryptocurrency trading company reported that it had been informed by the SEC of a "preliminary determination" that its trading activities in cryptocurrencies were possible securities law violations.
The company said it received investigative subpoenas from the SEC regarding, among other topics, the company's cryptocurrency listings, custody of cryptocurrencies and platform operations. The company said that the "Wells Notice" informed them that the SEC staff would likely recommend an enforcement action alleging violations of SEA Sections 15(a) ("Registration and regulation of brokers and dealers") and 17A ("National system for clearance and settlement of securities transactions").
In a statement, the company's Chief Legal, Compliance and Corporate Affairs Officer said, "we firmly believe that the assets listed on our platform are not securities and we look forward to engaging with the SEC to make clear just how weak any case ... would be on both the facts and the law." The company said that its crypto unit has chosen not to list certain tokens or provide products, such as lending and staking, that the SEC previously alleged were securities in public actions against other platforms and said that it had attempted to register as a "special purpose broker-dealer" with the agency.
Commentary
The SEC's stance on crypto regulation continues to be a point of contention. While the agency staff frequently encourages engagement, they stop short of offering any assurances that such cooperation will shield participants from potential enforcement actions. This approach adds to the argument that as to crypto, the SEC is regulating by enforcement. The unfortunate result is that the ultimate shape of crypto regulation may be forged through judicial decisions rather than SEC rulemaking or legislative action by Congress.