John Deaton, managing partner of the Deaton Law Firm and Founder of CryptoLaw, criticized the U.S. Securities and Exchange Commission (SEC), following the SEC announcement of a lawsuit against Binance, the world’s largest cryptocurrency exchange.
"Regulation by enforcement, and lawsuit by media. The public doesn't trust the @SECGov for a reason. Watch and learn why," Deaton tweeted through the CryptoLaw Twitter account on June 5.
The SEC named Binance and its founder, Changpeng Zhao (CZ) as subjects of a lawsuit, alleging the company committed numerous securities law violations.
“While we take the SEC’s allegations seriously, they should not be the subject of an SEC enforcement action, let alone on an emergency basis,” Binance said in a statement responding to the SEC lawsuit. “We intend to defend our platform vigorously. 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.”
Binance said the SEC’s actions are “surprising” in that they undermine the role of the U.S. as a global leader in financial innovation.
“Digital asset laws remain largely undeveloped in much of the world, and regulation by enforcement is not the best path forward,” said the statement. “An effective regulatory framework demands collaborative, transparent and thoughtful policy engagement — a path the SEC has abandoned.”
The SEC “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 Binance.
Deaton said “crypto needs to unite to face” the SEC, which he said is a “powerful common enemy.”
“For the last 2 years, [Ripple Labs] and [LBRY Inc.] communities have been put through hell by the consequences of @SECGov regulation by enforcement,” tweeted Deaton. “Today, many other communities began the same journey. The SEC is a powerful common enemy. Crypto needs to unite to face it.”
SEC Also Files Suit Against Coinbase
A day after filing the Binance lawsuit, the SEC announced a suit against Coinbase, the largest crypto exchange in the U.S.
The SEC had notified Coinbase of the potential action back in March, when the commission sent the exchange a Wells notice, according to a March 22 Coinbase blog post.
Paul Grewal, the chief legal officer of Coinbase, said Coinbase has repeatedly asked the SEC to put out clear regulatory guidelines so the company and other crypto companies can follow them, but he said the SEC has not been communicative.
"If our regulators cannot agree on who regulates which aspects of crypto, the industry has no fair notice on how to proceed," said 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."
Seeking “Regulatory Clarity” from Congress
In October, SEC Commissioner Hester Peirce asked Congress to pass a bill that could provide regulatory clarity in the crypto industry, Pensions & Investments reported.
Peirce said that under SEC Chairman Gary Gensler, "we haven't really done anything besides bringing enforcement actions" in the crypto sector.
"We've issued some limited relief, but I think that relief is not expansive enough to allow some traditional players who are interested in this space to come in," Peirce said, according to Pensions & Investments. "I think it is a good time for legislation. It's up to Congress to figure out how they want to allocate the regulatory responsibility."
For its part, Congress has raised concerns about the regulatory approach to digital assets in the U.S. and highlighted the lack of a clear regulatory regime for trading platforms.
The Federal Newswire previously reported that Chairman Patrick McHenry (R-NC) and members of the House Financial Services Committee sent a letter to SEC Chair Gary Gensler criticizing his agency’s approach to regulating digital asset trading platforms. They said Gensler has "failed to provide a path that allows digital asset trading platforms to register."
During an April hearing, McHenry denounced Gensler's refusal to provide clarity on digital asset regulation.
“You’re punishing digital asset firms for allegedly not adhering to the law when they don’t know it will apply to them. That’s nonsensical,” McHenry said. “Regulation by enforcement is not sufficient nor sustainable.”
McHenry and his colleagues on the House Financial Services Committee recently called for Congress to pass a comprehensive bill laying out regulations for digital assets, so that innovation can continue to thrive in the U.S. The members also expressed criticism for Gensler’s aggressive efforts to “regulate by enforcement.”
“Digital assets, and their underlying blockchain technology, hold promise as the building blocks for the next generation of internet technology," the letter said. "But it’s the job of lawmakers — not unelected bureaucrats — to legislate a regulatory framework. Moreover, it is critical that the Committee prevent the SEC from continuing its effort to regulate by enforcement. Establishing clear rules of the road ensures this innovation will remain in the United States."
To that end, according to a June 2 news release, McHenry and Congressman Glenn "GT" Thompson, R-Pa., chairman of the House Committee on Agriculture, released a draft of a bill intended to provide clarity for and fill the gaps in regulation of the digital asset industry.
McHenry said he hopes the joint effort between the two committees has resulted in a draft that takes a balanced approach, and he looks forward to hearing feedback from industry members and other stakeholders.
“This discussion draft is the first step toward delivering on Republicans’ commitment to develop clear rules of the road for the digital asset ecosystem,” McHenry said in the release. “Our goal is to strike the appropriate balance between consumer protection and encouraging responsible innovation. This is the product of an unprecedented joint effort between the House Financial Services and Agriculture Committees, which gives us a better shot at striking that balance. I encourage stakeholders and market participants to provide constructive feedback to help us improve our legislation.”
