October 27, 2023
SEC Chair Highlights Enforcement Efforts
Chair Gensler had an active calendar this week, also speaking on Wednesday at Securities Docket’s 2023 Securities Enforcement Forum in Washington DC. In his speech, Chair Gensler quoted some of the “founding fathers” of the SEC – Joseph Kennedy, William O. Douglas and Felix Frankfurter – to describe the SEC’s enforcement focus, and then highlighted the key areas where the SEC has brought enforcement actions this year.
In introducing the inevitable discussion of digital assets, Gensler quoted Supreme Court Justice Thurgood Marshall, who in the Reves decision wrote: “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.” Chair Gensler noted:
In most cases, that’s the economic reality at hand. As the Supreme Court said in the famous Howey decision: An investment contract exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.
As I’ve previously said, without prejudging any one asset, the vast majority of crypto assets likely meet the investment contract test, making them subject to the securities laws.
Further, it follows that most crypto intermediaries—transacting in these crypto asset securities—are subject to the securities laws as well.
With wide-ranging noncompliance, frankly, it’s not surprising that we’ve seen many problems in these markets. We’ve seen this story before. It’s reminiscent of what we had in the 1920s before the federal securities laws were put in place. This is a field rife with fraud, scams, bankruptcies, and money laundering. While many entities in this space claim they operate beyond the reach of regulations issued before Satoshi Nakamoto’s famous white paper, they also are quick to seek the protections of the law, in bankruptcy court and litigating their private disputes.
We have brought numerous enforcement actions against actors in this space—some settled, and some in litigation.
Chair Gensler went on to highlight the themes of accountability for firms and individuals, high impact cases, the importance of process and holding accountable those in a position of trust.
– Dave Lynn