Roslyn Layton, Executive Vice President of the independent consultancy firm Strand Consult, has critiqued the U.S. Securities and Exchange Commission's (SEC) approach to the cryptocurrency industry. In an opinion piece published by DC Journal on April 3 titled "The SEC Came to Destroy Crypto, Not to Regulate It", she stated that the SEC's approach "is not designed to protect investors from fraud or even to clarify what legal compliance means."
"The SEC has mobilized all its resources to carry out a policy against crypto companies that is not designed to protect investors from fraud or even to clarify what legal compliance means," said Layton. "It is practicing what professor J.W. Verret of George Mason University has called 'enforcement by destruction,' trying to turn courts into execution chambers for an industry it never intended to regulate but to destroy. It comes down to a bait-and-switch strategy by two successive SEC chairmen to claim that every digital asset, no matter how it is designed, is itself a 'crypto asset security,' and that gives the agency full authority to require they be registered like stocks. Nothing in nearly a century of securities law provides the SEC such all-encompassing authority over an entire asset class."
Layton noted that while the SEC has undertaken a series of "non-fraud enforcement actions" against crypto companies, it has failed to issue "a single regulatory guideline registering a digital asset or determining whether it will be a security." She also mentioned that there are no forms, instructions or published rules for registration. According to Layton, the penalties sought by the SEC in its lawsuits are so substantial that many companies cannot afford to contest them. However, those that have managed to do so "have exposed how truly bad the SEC’s faith has become."
In her piece, Layton cited Ripple Labs as an example of a company that successfully challenged the SEC's allegations. The California-based payments software company was accused by the SEC of offering unregistered securities through the sale of its token XRP. However, in July 2023, U.S. District Court Judge Analisa Torres ruled that XRP is not a security when offered on public exchanges. Despite this victory for Ripple Labs, CEO Brad Garlinghouse revealed that they had spent over $100 million on legal costs throughout their three-year case with the SEC.
The San Francisco-based crypto exchange Coinbase was also sued by the SEC over alleged registration violations, according to a post on the company's website. Coinbase Chief Legal Officer Paul Grewal said in the post that Coinbase had repeatedly tried to engage with the SEC, but the SEC had been uncommunicative. Prior to the SEC filing its lawsuit, Grewal said the SEC asked Coinbase if it would be interested in registering with the SEC and laying out what a potential path for registration would look like for other crypto exchanges. Coinbase said it was interested, and developed and proposed two different models for registration. "We spent millions of dollars on legal support to build these proposals and repeatedly asked for the SEC’s feedback. We got none," Grewal said. He said the SEC also declined multiple invitations to provide feedback or raise questions about Coinbase's listing process.
The Investor Choice Advocates Network (ICAN), a nonprofit public interest litigation organization, has joined the fray by filing an amicus brief asking for the dismissal of the SEC's lawsuit against crypto exchange Binance. According to Globe Banner, ICAN cited the SEC's "ambiguous" application of securities laws as a reason for dismissal. The organization argued that the SEC was attempting to regulate the digital asset industry through "piecemeal litigation," rather than through Congressionally granted authority or official rulemaking.
Apart from her role at Strand Consult, Layton is also part of the Advisory Council of the Krach Institute for Tech Diplomacy at Purdue University and serves as a senior fellow at both the National Security Institute and Lincoln Policy. She is also the founder of China Tech Threat and was previously associated with the American Enterprise Institute.
