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Who Will Protect Investors From The SEC?

Who Will Protect Investors From The SEC?
Written by publisher team

Last Wednesday, the current and former chairs of the Securities and Exchange Commission (SEC) shared what was described as an “indirect conversation” to open the Compliance and Digital Asset Marketing Summit. Gary Gensler and Jay Clayton spoke, asked no questions, and agreed that the multi-trillion dollar crypto innovation space poses a dark and threatening threat that legitimate crypto entrepreneurs must follow opaque rules or face crippling lawsuits at the SEC . Gensler explained that there is no difference between “scammers” and “good-willed actors” in cryptocurrency – both are illegal and endanger the public.

Many of the audience of cryptocurrency industry leaders, who have been abused for being scammers, are shocked. “The platforms have to come in and get taped,” Gensler said over and over, as if everyone knew what he was talking about. Brian Boring, President of the Chamber of Digital Commerce chirp, “People in the room look around and ask, ‘Register as what? ”

It’s a fair question given that Coinbase – the only crypto company ever to go public on the stock market – tried to “get in”. When sharing its lending platform information, the Securities and Exchange Commission issued a subpoena for the Coinbase deal, threatening what Gensler affectionately calls an “enforcement tool.”

John Deaton was also in the room. The Rhode Island attorney represents a supposed growing class of more than 62,000 XRP holders claiming to be innocent victims of the SEC’s policy of regulation through enforcement. It was collateral damage in the SEC’s massive enforcement action against cross-border payments firm Ripple, which was lifted in the final hours of Clayton’s nearly year-long presidency until summit day. This is set to be the most important issue to date in deciding the fate of blockchain innovation in the United States and the authority of the SEC to regulate it.

The SEC claims that every XRP sale has been an unregistered security trade since it was first sold in 2013, including billions of tokens sold on secondary markets by unrelated retail owners. Or even knowledge of Ripple. The agency insists that XRP – the token itself – is a security, has no interest other than holding an investment in Ripple and that everyone in the market should have known about eight years ago even though the SEC didn’t know it to this day. lawsuit. No fraud was alleged, only a failure to “log in and register” back in 2013. The allegations are even more surreal after Wednesday’s event, as no one knew what “registration” meant for a digital asset, decentralized financial product, or cryptocurrency trading platform.

Deaton’s legal case asks: How can the XRP token itself be safe under the same legal authority that the agency cites for its broad power over regulated crypto, the so-called Howey By decision of the Supreme Court in 1946? Howey It was an orange orchard case where the court held that a security was defined as “an investment of money in a joint venture with a reasonable expectation of profit to be derived from the efforts of others”. As Deaton points out, the orange itself was not a stock in the HoweyTherefore, the XRP token itself is not a security now. If the SEC succeeds in this case, every digital asset in existence is at risk, Deaton suggests.

Currency exchanges immediately suspended trading on XRP when the Securities and Exchange Commission filed the lawsuit against Ripple. This has resulted in the closure of billions of XRP tokens held by retail holders in digital wallets, making them impossible to access due to the collapse in the value of XRP. After several legal tactics that attempted to force the Securities and Exchange Commission to limit the scope of its claims to Ripple’s XRP sales and leave the token itself alone, Deaton clients were granted amici status by Judge Analisa Torres to advise her on dispositional matters.

Deaton asserts that a letter from former Chairman Joseph Grundfest warned the Securities and Exchange Commission prior to filing a lawsuit against Ripple that “merely initiating the procedure will do significant harm to innocent XRP holders, regardless of the final decision.”

Grundfest wrote to all five commissioners: “I am aware of any instance in which a simple announcement of a Commission enforcement action, in the absence of allegations of fraud, misrepresentation or omission, has caused billions of dollars in losses to innocent third parties.” “When the action is known, brokers will stop trading in XRP due to the legal risks associated with doing so. The resulting drop in liquidity will cause the value of XRP to fall.”

Clayton ignored Grundfest’s warning, filed the lawsuit and jumped ship, leaving the Securities and Exchange Commission in increased legal and moral jeopardy. Meanwhile, Gensler is increasingly hinting that the Ripple affair is just an opening shot in a war he intends to wage on the entire space.

Wasn’t lost on anyone covering ‘side chat’ – from The New York Times to Fox Business Channel – The issue of Ripple overshadowed the discussion, although both presidents avoided it. But the disconnect between Gensler’s SEC and reality goes beyond the problems Ripple has been embroiled in. Cryptocurrency investors now realize that the Securities and Exchange Commission (SEC) makes it what it is. It invents rules and uses enforcement – or the threat of it – to entrench its abusive policy. Arguably, a settlement with Ripple is a possibility, and probably won’t prevent the agency from going after Ethereum next, or filing a massive enforcement lawsuit against several exchanges that could make the plight of Deaton’s XRP holders look small by comparison.

The House Financial Services Committee is holding a hearing Wednesday on regulating cryptocurrency. Among the cryptocurrency executives called to testify, committee chairwoman Maxine Waters (D-CA) boasted that she would “hold them to account,” not Gensler. Interestingly, investors and consumers – the stakeholders who are supposed to be protected by law – were excluded from the “side chat” and hearings. Dayton urging Those affected should contact members of Congress and demand accountability at the Securities and Exchange Commission. It is the job of Congress, not Gensler, to make cryptographic law. Everyone who cares about the future of cryptocurrency should demand legislation that clarifies the rules – for the people and the Securities and Exchange Commission.

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