Ex-SEC official backs agency’s approach to regulating the crypto industry

The assertion that the SEC ‘regulates the crypto industry through enforcement’ is mistaken, since that is how securities regulation works. This was stated by John Reed Stark, the former head of the agency’s Office of Internet Enforcement.

“Litigation and enforcement actions are how securities regulation works. The flexibility of the SEC’s ‘weapon’ is its hallmark, allowing it to keep fraud under control. The mantra of ‘regulation by enforcement’ is complete nonsense, a misguided attempt to appeal to sympathetic libertarian minds”, — explained the former official.

Reed Stark reminded that similar criticisms of the SEC had been voiced in 1998. Back then, critics also pointed to ‘vague’ rules that formed barriers to industry growth.

“Looking back, one can say that we managed to remove the most egregious cases of early internet-based securities fraud. In addition, the SEC’s vigorous enforcement of the securities laws paved the way for the flourishing of legitimate technological innovations, making markets more efficient and transparent. Investors have more opportunities to succeed” — he explained.

In 2022, the Commission brought 30 cases related to cryptocurrencies.

The figure accounted for almost a quarter of the regulator’s total enforcement actions for the year — 127 cases.

According to the former official, the SEC had not lost a single case in these matters. The agency, on the whole, does not seek to be overzealous, follows the law, and is not biased.

“Rather, the SEC applies a prudent, common-sense application of core federal securities laws to new and evolving market conditions and technologies,” — he added.

In the comments on the article, Timothy Cradle, regulatory affairs director at Blockchain Intelligence Group, asked Reed Stark whether clear rules would ultimately be better policy than enforcement-based regulation. He urged the agencies to clarify that their requirements apply to cryptocurrencies.

Former member of the PA Blockchain Coalition’s advisory board Chris Hayes stressed that ‘a sensible solution would be to clarify the SEC regarding cases of the inability to register digital assets due to the blockchain’s nature’.

Earlier in Cornerstone Research it was suggested that overseeing the crypto industry would remain a priority for the Commission under Gary Gensler. They noted that in May the agency nearly doubled the size of the relevant division.

In January 2023, the SEC accused Gemini—the Winklevoss twins’ Bitcoin exchange—of selling unregistered securities.

Follow ForkLog’s Bitcoin news on our Telegram — crypto news, prices and analysis.