By Chris Matthews
The SEC chief defends the agency’s lawsuit against Coinbase
Securities and Exchange Commission Chairman Gary Gensler has faced tough criticism after his agency sued cryptocurrency exchanges Binance Holdings Ltd. and Coinbase Global Inc. for securities law violations, but the regulator remains steadfast in his belief that noncompliance in the crypto industry is widespread and threatens the public’s trust in U.S. financial markets.
The SEC’s lawsuit against Coinbase (COIN) was seen by crypto boosters as especially egregious because the lawsuit does not allege fraud and focuses instead on the company’s failure to register with the SEC as a securities exchange and submit itself to the agency’s strict oversight.
Gensler said Thursday before the Piper Sandler Global Exchange and FinTech conference that these criticisms miss the mark.
“Registration is not just a process issue,” he said. “Failure to register isn’t just a foot fault in a tennis game. It’s core to providing the investing public and our markets with basic protections.”
The SEC Chairman also pushed back on the argument that it is impossible under current rules for crypto intermediaries like Coinbase to successfully register with the agency.
Instead, the company may need to consider radically altering its corporate structure so that it operates more like a traditional financial services entity, he said.
“Crypto intermediaries may need to separate lines of business, put into place rulebooks that protect against fraud and manipulation, properly segregate customer funds, mitigate conflicts, or change their approach to clearing and custody,” he said.
“These are the things that protect investors. The fact that they didn’t build their platforms with these things in mind shouldn’t be a free pass to put investors at risk.”
Gensler also addressed the Binance lawsuit, where the agency alleged that the company commingled customer funds and deceptively boosted trading volumes through wash trades.
He said the Binance example, along with many other crypto scandals, is reminiscent of how traditional financial markets operated before the securities laws were passed in the 1930s.
“With wide-ranging noncompliance, frankly, it’s not surprising that we’ve seen manyproblems in these markets,” Gensler said. “We’ve seen this story before. It’s reminiscent of what we had in the 1920s before the federal securities laws were put in place: Hucksters, fraudsters, scam artists [and] Ponzi schemes. The public left in line at the bankruptcy court.”
-Chris Matthews
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06-10-23 1123ET
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