Crypto Lobby Group Rails Against SEC “Back-Door Rule Making
Posted by Colin Lambert. Last updated: February 23, 2023
US crypto lobby group, The Chamber of Digital Commerce, has submitted an Amicus Brief calling for the insider dealer charges against former Coinbase employee Ishan Wahl and two others to be dropped because the litigation is “an unprecedented, stealth attempt to expand the SEC’s jurisdictional reach, and threatens the health and viability of the US marketplace for digital assets”.
Although the charges brought by the Securities & Exchange Commission are the focal point for the intervention, the lobby group largely focuses on the legitimacy of the SEC to oversee the market. The background to the association’s effort is the ongoing regulatory stoush between US regulators over who should have responsibility for the crypto sector in the US. A feature of several recent cases has been charges filed by both the SEC and the Commodity Futures Trading Commission (CFTC), the former citing digital assets as “securities”, the latter as “derivatives”.
The Chamber of Digital Commerce argues the Wahl case represents “a new front in the SEC’s longstanding ‘regulation by enforcement’ campaign, one which has already caused a great deal of harm to the digital asset industry, as well as investors in digital assets”. It adds it hopes a dismissal of the case by the court would “put an end to the SEC’s attempt at ‘back door’ rulemaking”.
The lobby group continues by warning, “Should the Court support the SEC’s claim that the digital assets at issue in this case are in fact “securities,” that decision would have far-reaching implications for the digital assets industry.”
Several proposed pieces of legislation currently pending before US Congress would help clarify the “chaotic regulatory environment for digital assets”, the group states, stressing that the lack of clear rules and regulations has created significant uncertainty, driving innovators in this space offshore and reducing US competitiveness and its ability to protect investors.
“Unfortunately, rather than waiting for congressional action – or even using its rulemaking authority to promulgate rules or issue adequate binding guidance for the digital asset industry – the SEC has forged ahead with lawsuits and enforcement activity,” the group states.
It argues that the allocators who created the tokens at issue in Wahi, the digital asset exchanges that facilitate their purchase and sale, and the many other entities and individuals that own, trade, advise on, or use those tokens to do business do not consider them to be securities – and there is no federal law stating that they are. “Given the opaque regulatory environment, other federal regulators – and even high-ranking officials within the SEC itself – have criticised the SEC’s approach, which is increasingly reflecting the view that all digital assets transactions are securities transactions, even if they bear none of the hallmarks of an investment contract,” it adds.
Finally, the group points out that a dismissal of the SEC’s case would not let the alleged wrongdoers off the hook, observing they have been indicted by the US Department of Justice and have pleaded guilty. They are also subject to an action for civil fraud. “A ruling embracing the SEC’s position and endorsing its tactics, however, would have tremendously negative implications for the digital economy and its institutional and individual participants,” the association concludes.