Investors in crypto-lending products have suffered from the SEC’s reluctance to provide clarity on regulating the digital-asset industry, said Pat Toomey, the Senate Banking Committee’s vice chair.
In a letter to SEC Chair Gary Gensler, the politician stressed that the ‘regulation through enforcement’ approach is capricious and an ineffective way to protect consumers. The agency’s measures hinder innovation and contribute to investors’ losses, Toomey argues.
He noted that in recent weeks several crypto-lending service providers collapsed, which were likely within the SEC’s remit.
“These firms often promised depositors huge, seemingly unacceptable interest rates, and, at least one of them, allegedly engaged in risky practices. It is reported that one of these entities, Celsius, managed assets totaling about $12 billion, using the funds of thousands of Americans to provide loans to organizations engaged in short-term crypto investments,” wrote the senator.
Customer funds at Celsius have been frozen since mid-June and the integrity of their deposits is in question, the lawmaker noted.
“If the SEC had responded to calls for clarity on how it would apply existing securities laws to new digital assets and services, things could have been different,” Toomey said.
In that case, the companies could have adjusted their products accordingly and prevented investor losses, he said.
“Instead, the SEC pursues enforcement regulation, selectively applying its opaque stance on which digital assets and services are securities,” the senator said.
He referred to the Commission’s charges of insider trading against a former Coinbase employee and two of his co-conspirators. In this case the SEC allegedly had a clear sense of why it deemed the nine tokens named in the complaint to be securities, but did not publicly disclose its view. Meanwhile, in the charges brought against the defendants by the Department of Justice, no fewer than 25 tokens are listed, Toomey noted.
He asked Gensler to provide written answers to a number of questions regarding interactions with Celsius, Voyager and BlockFi, possible recommendations for their products, and other aspects of the industry’s relationships.
Toomey also asked about the “distinctive features” of the nine tokens named in the SEC’s suit against the former Coinbase employee and the 16 other assets.
Earlier, the CFTC pointed to the SEC’s opaque approach to classifying tokens as “digital securities” in this case and criticised the agency’s enforcement-by-regulation method.
In Congress, the Commission was accused of politicising rules and an “unethical stance” toward the crypto industry.
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