SEC Replace: SEC Chair Gary Gensler earlier than the Aspen Safety Discussion board | Goodwin

In a speech to the Aspen Security Forum on August 3, 2021, SEC Chairman Gary Gensler followed his predecessor’s lead and reiterated the SEC’s view that current securities regulations are clear and that almost all tokens are securities. In the same speech, however, he cited “facts and circumstances to be assessed and assessed,” that is, a subjective assessment of facts and circumstances based on Howey’s multi-pronged test, and proposed the new regulation, even new laws, which are measures of Congress probably necessary. When urged to elaborate on the Q&A, he failed to formulate a clear test beyond basic Howey prongs or to point to an asset that he has definitely determined not to be a Security of 77 tokens worth at least 1 billion US dollars each and 1,600 tokens with at least. trades a market cap of $ 1 million, which he quoted in his comments. Gensler found that technology alone does not change the fundamental character of a securities offering and that the introduction and implementation of blockchain technology is analogous to the development of the Internet. The Internet has changed the way issuers, intermediaries and investors communicate, and existing rules could easily be adapted to new digital communications, such as the use of Internet investment portals, through which accredited investors could invest in private offers behind password-protected walls,[1] electronic delivery of offer materials[2] and public company disclosure through websites and social media[3]. In contrast, the evolution of blockchain technology has created an entirely new class of assets, deals with unknown third parties and mechanisms for storing and transferring value. Gensler’s oversimplified account of the rise of blockchain technology based on the evolution of the use of the internet in offering common stock is not a fair or accurate comparison. Cryptocurrencies are not a new mechanism for offering securities, they are by and large a new asset, but hundreds of new assets in particular, as each cryptocurrency, blockchain, protocol, ecosystem, or project considers a different use case.

Gensler also simplified the Howey test: “Have you given someone money in anticipation of profits for their efforts?” Unfortunately, even this simple test fails to take into account the many different types of digital asset diffusion, many of which do not involve an exchange of money between the sponsor of a protocol and the recipient of the digital asset. Gensler seemed to elaborate on the idea of ​​”their efforts”, describing it as “the handful of people at the center of the project and the investor hopes these people are well”. Again, the many iterations and innovations of decentralized structures are not taken into account and the basic idea that the “handful of people” can be a developer in South America, a foundation in Switzerland, a developer group in Europe, validators in Asia and a company in the United States States that are integrating the protocol into their new application and using the digital asset for the benefit of their customers. The simplification of the test does not simplify the facts to which this test applies; that’s the hard part.

Gensler’s approach seemed to anticipate more aggressive enforcement activity, but the message seems to suggest that exchanges – centralized and decentralized – are the intermediary through which the SEC can regulate the broader crypto and blockchain industry. He recognized over 1,700 tokens and gave numerous generalized examples of exchanges that he theorized would likely trade securities if they traded more than three or four tokens. While the SEC can’t get the genie back in the bottle with 1,700 tokens, it may be trying to prevent liquidity and trading in those tokens through the exchange of digital assets, and that could be the first goal of Gensler’s enforcement policy. However, his jurisdiction over these exchanges may not be as clear as his comments seemed to indicate, as current and former CFTC commissioners commented shortly after Gensler’s speech that jurisdiction over commodities trading establishments falls within the jurisdiction of the CFTC, not the SEC.[4] It remains to be seen which agency could take the lead in comprehensive crypto regulation, but that may not stop the SEC’s enforcement regime anytime soon.

It seems the approach remains the same through the change in leadership: clearly declare the regulatory landscape while calling for action from Congress, new rules and industry-focused solutions to clarify what was deemed clear, while putting enforcement actions in place that Provide: No clear political or regulatory goal. With this in mind, many projects are looking for alternative jurisdictions, which carries the risk that this alternative jurisdiction will control this next phase of innovation and reap its benefits, much like the US did with the Internet age, but may not be in a position to do so in the crypto age.

[1] See, for example, Personal No Action Letters, IPONET (available July 26, 1996); Lamp Technologies, Inc. (available May 29, 1997).

[2] Use of Electronic Media for Delivery, SEC Release 33-7233 (October 6, 1995).

[3] See, for example, the Commission’s guidance on the use of corporate websites, SEC Release 34-58288 (August 7, 2008); Securities Act Rules C & DIs, Question 110.01 (April 21, 2014) (describes how issuers can comply with rule 134 when using social media platforms that limit the number of characters in a post).

[4] Commissioner Brian Quintenz via Twitter: “Just so we are all clear here, the SEC has no authority over pure commodities or their trading venues, regardless of whether these commodities are wheat, gold, oil … or #crypto-investments.” August 2021. Former CFTC Chairman Chris Giancarlo on Twitter: “Only one US regulator has experience regulating the #Bitcoin & #Crypto markets and it’s not @SECGov. It’s @CFTC. If the #BidenAdministration is serious about sensible # cryptocurrency regulation, they must appoint a CFTC #Chariman. ”@GiancarloMKTS, August 4th, 2021.

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