The U.S. Securities and Exchange Commission's former chief counsel criticized the commission's lawsuits against against major crypto exchanges Binance and Coinbase, calling the suits "regulation-by-enforcement."
"Let’s be clear: the @SECGov complaint doesn’t mention this, but there is currently NO way for a platform like @coinbase to register as a securities exchange, broker, or clearing agent,” Le said on Twitter. That’s why they’ve been begging @SECGov for YEARS to give them a path to compliance.”
"Let’s be clear: the @SECGov complaint doesn’t mention this, but there is currently NO way for a platform like @coinbase to register as a securities exchange, broker, or clearing agent. That’s why they’ve been begging @SECGov for YEARS to give them a path to compliance," tweeted TuongVy Le. "Instead of working constructively with U.S. market participants to come up with a working model, and knowing that Congress is actively considering legislation to do the same, SEC sues. No allegations of fraud, just accusing @coinbase of failing to do the impossible.
"This is why regulation-by-enforcement hurts investors & creates chaos and confusion in the markets - the opposite of the SEC’sSEC’s mandate,"mandate," she said. "What’s more, SEC approved Coinbase to sell its shares to the public - meaning not just crypto investors but Coinbase shareholders will be hurt."
The SEC is alleging that Coinbase has been operating a digital asset trading platform since 2019 without properly registering.
Paul Grewal, the chief legal officer of Coinbase, wrote in a March 2022 blog post that the SEC had notified Coinbase of the potential action back in March, when the commission sent the exchange a Wells notice.
"Regulatory uncertainty in the crypto industry is getting worse," wrote Grewal. "Instead of developing a regulatory framework for crypto, the SEC is continuing to regulate by enforcement only. We recently explained in an amicus brief the lack of guidance for crypto companies to follow. Nevertheless, we have continued to try and engage with the SEC. In addition to our attempts to develop a registration path, we have repeatedly, formally asked the SEC to engage in rulemaking for our industry."
He said this lack of guidance leaves the industry with "no fair notice" on how to proceed.
"If our regulators cannot agree on who regulates which aspects of crypto, the industry has no fair notice on how to proceed," wrote Grewal. "Against this backdrop, it makes no sense to threaten enforcement actions against trusted public companies like Coinbase who are committed to playing by the rules. It makes even less sense to threaten enforcement actions unless an industry participant concedes that non-securities can be regulated by the SEC. That is for Congress to decide."
Binance, the world's largest crypto exchange, voiced similar concerns after the SEC filed suit against the company and its founder, Changpeng Zhao (CZ), alleging numerous securities law violations.
"Today’s action is another in a line of examples where, as with other crypto projects facing similar suits, the Commission has determined to regulate with the blunt weapons of enforcement and litigation rather than the thoughtful, nuanced approach demanded by this dynamic and complex technology," said a statement issued by Binance. "Unilaterally labeling certain tokens and services as securities – even ones over which other U.S. authorities have asserted jurisdiction – only compounds these problems."
Binance said the company is “disappointed” that the SEC has chosen this path, despite the fact that Binance has been trying to cooperate with the SEC’s investigations to address its concerns.
“Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry," said the company.
Le had expressed similar concerns back in February, telling Coindesk the SEC Is regulating "almost entirely through enforcement actions."
“When the SEC tells us that something is not compliant, it’s not necessarily the same thing as telling us what they would consider compliant,” she said.
Last week, U.S. Rep. Patrick McHenry (R-N.C.), chairman of the House Financial Services Committee, and Glenn "GT" Thompson (R-Pa.), chairman of the House Committee on Agriculture, released a discussion draft of a "legislation providing a statutory framework for digital asset regulation intended to provide clarity, fill regulatory gaps, and foster innovation, while providing adequate consumer protections."
"This historic joint effort with the House Committee on Financial Services aims to close existing authority gaps between the CFTC and SEC and bolster U.S. leadership in financial and technological innovation," Thompson said.
U.S. Rep. Dusty Johnson (R-S.D.), chairman of the Subcommittee on Commodity Markets, Digital Assets, and Rural Development, said "there is a lot of confusion surrounding digital assets" and the draft bill "establishes a functional framework to fill the gaps in the regulatory process between the CFTC and the SEC."
"This is not only beneficial for digital asset firms, but for consumers and digital asset owners," said Johnson.