During a recent fireside chat at the New York University Law Institute for Corporate Governance and Finance, Gary Gensler, the Chair of the U.S. Securities and Exchange Commission (SEC), was questioned regarding his approach to regulating cryptocurrency. Law students and former SEC Commissioner Robert Jackson Jr. challenged Gensler's reliance on the Howey Test, a 1946 Supreme Court ruling that determines whether an asset qualifies as an investment contract.
Jackson asked, "Is that the way we should oversee cryptocurrency, by trying to apply a 1940s Supreme Court decision to this technology?" Gensler responded by emphasizing that it is the law and is designed to protect investors. He stated, "At the core of the securities laws, there is a basic concept — you all get to decide what you want to invest in." Gensler noted that disclosures are essential, whether for investments in green energy or artificial intelligence.
The SEC has taken enforcement actions against major players in the crypto industry, including FTX, Binance, Kraken, and Coinbase. Gensler has warned that crypto exchanges must register with the SEC, asserting that most cryptocurrencies are indeed securities. However, many crypto firms argue that the existing rules are not applicable to the digital asset sector.
Gensler pointed to a significant rise in fraud within the crypto industry, referencing a recent FBI report that indicated a 45% increase in losses related to cryptocurrency since 2022. He remarked, "With all respect, the leading lights of this field in 2022 are either in jail or awaiting extradition right now."
Former Commissioner Roberts inquired whether a regulatory framework for digital assets would be more beneficial. Gensler insisted that such a framework already exists, stating, "Just because people don't like the law doesn't mean there's no law." Moreover, a law student queried about the SEC's term crypto asset securities and the agency's clarity on its stance. The SEC clarified that when it refers to crypto asset securities, it means the entirety of contracts and expectations related to these assets.
When asked about the implications for token utility if they comply with SEC regulations, Gensler emphasized the SEC's merit-neutral stance, allowing investors to decide their utility. He added, "It's unlikely this stuff is going to be a currency. It's going to have to show its value through disclosure, through use."
