Former SEC Official Critiques Crypto Industry's Misinterpretations of 'Enforcement by Regulation'
Summary:
Former SEC official John Reed Stark has criticized the cryptocurrency industry for spreading misunderstandings about the SEC's approach of "enforcement by regulation". Stark stated this belief is simply the regulator fulfilling its responsibilities. He also highlighted that digital assets typically lack conventional business attributes making them hard to value. Stark's comments came amid wider criticisms of SEC's procedures in a U.S. House Financial Services Committee hearing. Nick Morgan, the founder of the Investor Choice Advocates Network (ICAN), also criticized the SEC for creating potential legal ambiguity through a case-by-case approach.
John Reed Stark, ex-official of the Securities and Exchange Commission (SEC), has charged the cryptocurrency sector with spreading myths to cloud its absence of openness and responsibility, discounting allegations of the SEC's "enforcement by regulation". During a U.S. House Financial Services Committee hearing on May 7, Stark put forth these remarks. The former internet enforcement head of the SEC stated that the crypto sector resists conforming to existing laws and demands that the legal structure adjust to its requirements. He added that the notion of SEC regulation by enforcement is a misconception; it's merely the regulator executing its responsibilities.
Stark highlighted that digital assets usually do not have cash flow, yield, employees, management or a balance sheet. Additionally, they do not offer a product or service, have no operational history, do not release earnings reports and lack a proven track record of adoption or reliance. He raised the question of how any financial analyst or ordinary investor could evaluate such elements in the absence of relevant data.
The concept of "enforcement by regulation" is commonly used within the crypto sector to criticize the SEC's application of rules and regulations. The sector argues that the SEC is setting regulatory precedents through enforcement actions as opposed to developing clear, formal regulations via the legislative or rulemaking process.
However, Stark admitted that the SEC is not flawless and that there are cases and rules he finds unjust. He emphasised that the SEC is merely performing its duty and that the digital asset sector should comply with existing laws rather than expecting the laws to adjust to it.
The focus of the hearing was to scrutinise and enhance the Commission’s enforcement practices, with severe backlash directed towards the agency’s methodology and its overall impact on businesses and individuals.
During this hearing, Nick Morgan, the founder of the Investor Choice Advocates Network (ICAN), criticised the SEC for creating "piece-by-piece litigation on a case-by-case basis". He referred to instances where the Commission opted to dismiss unfavorable rulings in certain jurisdictions and sought more desirable outcomes elsewhere. Morgan stated that the SEC's "regulation by enforcement" policy results in legal ambiguity for ordinary people, even those who haven't been charged with fraud, forcing them to contest policy matters case by case, even when a federal appellate court rules against the SEC on a specific policy.
Published At
5/7/2024 8:02:00 PM
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