S.E.C. Chief Gary Gensler: "Crypto is Not Laundry Tokens"

In a speech to lawyers on Thursday, Gary Gensler said nearly 10,000 crypto tokens are securities that violate federal law.

"Investors buy or sell crypto security tokens because they expect to make money from the effort of others in a common enterprise," the S.E.C. chairman wrote in prepared remarks, paraphrasing a definition of "security" in U.S. caselaw.

The attorney general pointed the finger at those in the industry who believe that existing securities laws are incompatible with cryptocurrencies and who are calling for rules tailored specifically to the industry. According to him, the S.E.C. has clarified how existing law applies to the industry through statements and enforcement actions and that no such rules are forthcoming. He added that these are not laundromat tokens. Promoters market these tokens, and investors buy most of them, hoping to profit from their efforts. It doesn't mean you didn't receive a message just because you dislike it, said Gensler.

Gensler said investors need disclosure to help them determine whether investments will succeed or fail. According to him, "Investors deserve protection from fraud and manipulation. The law requires these protections." In May, the S.E.C. announced it was adding 20 new positions to its Crypto Assets and Cyber Unit, nearly doubling the size of its enforcement staff dedicated to protecting investors in the crypto market. During his speech, Gensler specifically called out crypto exchanges and other intermediaries, asking that they get registered as brokerdealers and securities exchanges.

The S.E.C. has questioned Coinbase about how it selects which digital assets to list and how it classifies them, according to Coinbase's quarterly report. The S.E.C. filed charges against a former Coinbase product manager in July, alleging that nine tokens listed on the exchange are securities. Coinbase has said S.E.C. classifications are wrong. Due to its failure to register with the agency, the crypto lending platform BlockFI was fined $100 million in February. Since crypto exchanges also provide custodial and broker-dealer services, the S.E.C. will need to develop new registering procedures.

Unlike stock exchanges, crypto exchanges can also offer both investments and commodities on the same platform, and Gensler has directed staff to figure out how to allow investors to trade both simultaneously.

—Crypto Weekly