The head of the U.S. Securities and Exchange Commission (SEC) expressed support for his agency’s enforcement efforts against digital asset and cryptocurrency companies during testimony Tuesday before the Senate Committee on banking, housing and urban affairs.
Gary Genseler’s comments came a day after the SEC announcement charges against New York-based GTV Media and Saraca Media for making an unlawful unregistered offer of a digital asset security called G-Coins or G-Dollars.
GTV and Saraca, as well as Guo Media, based in Phoenix, Ariz., Were further charged with carrying out an unlawful unregistered offer of GTV common stock.
The companies agreed to pay more than $ 539 million to settle the SEC’s action.
The SEC chairman today told lawmakers that the SEC needs additional employees and legislation to manage cryptocurrency compliance. Gensler did not go into details, and committee members did not follow up. Today’s digital currency markets look like they were 90 years ago, when the federal government had little oversight and investors had no recourse, he said.
What is digital currency?
The question that senators from both sides have asked is whether digital assets and cryptocurrency are securities.
A key controversy during the two-hour hearing revolved around the definition of securities. Senior committee member Republican Senator Pat Toomey of Pennsylvania asked Gensler which digital assets are defined as securities and which are not.
âThere are a small number that are not. And many are, âGensler replied, adding that the SEC views most digital assets as security under the Howey Test, a 1946 U.S. Supreme Court ruling.
Howey’s test defines a title as an investment contract where “the investment of money in a joint venture with a reasonable expectation of profit to be derived from the efforts of others”.
In addition, the High Court has declared that a security is subject to US securities laws.
The nearly 75-year-old opinion is outdated because it does not deal with digital assets. Republicans have repeatedly stated that they want to see clear guidelines and definitions on what constitutes cryptocurrency and digital assets. They claim the SEC hasn’t done enough to issue guidance in recent years.
A different approach
Members of the Republican committee have also expressed concerns about the SEC’s treatment of cryptocurrency companies. Senator Steve Daines, R-Montana, said the commission “needs a lighter touch” when dealing with the cryptocurrency industry.
In response, Gensler said the SEC is not taking a heavy hand on the industry. Instead, the agency asks companies to register with the SEC and follow its rules and regulations. When SEC officials meet with the cryptocurrency industry, “we ask them to work in an environment of investor protection,” the president said.
Daines expressed concern that the âheavy handâ approach will send jobs overseas, adding that âAmerica could be a leaderâ in the cryptocurrency arena. Emails to cryptocurrency groups researching the number of Americans currently employed in the industry were not immediately returned on Tuesday.
Technology, Republicans on the committee said, is key to a healthy economy and cryptocurrency is a vehicle for advancing personal wealth and entrepreneurship.
Speaking in general terms, Senator Cynthia Lummis, R-Wyoming, asked where the agency stands when it comes to technology.
âI think it’s the heart of our economy. Look at the last 90 years in the markets,â Gensler replied.
Lummis was a major sponsor of a failed Senate amendment to revamp language favorable to the cryptocurrency industry in the $ 1 billion infrastructure bill. She asked what is preventing the SEC from acting on digital currency,
In addition to personnel and funding issues, Gensler said there were accountability gaps between federal agencies that oversee digital asset markets. For example, should federal agencies that regulate banks, the SEC or the Commodity Futures Trading Commission (CFTC) also regulate digital assets? To support his argument, Gensler pointed out that the CFTC has oversight, but little enforcement powers.
Gensler said the SEC’s approach is to protect investors. The agency has taken enforcement action against digital access companies that failed to register with regulators after selling digital assets to consumers.
âThis Congress could change the laws, but the laws we have now have a very broad definition of a title,â he said. “There is a very specific litany of instruments that constitute titles.”
Senator Elizabeth Warren, D-Massachusetts, cited the sharp drop in the prices of Bitcoin and other digital assets last week and sellers being offline for hours, not allowing investors to sell their assets.
âWhat options did they have to sell their investment? ” she asked.
Gensler shook his head, saying cryptocurrency is a “highly speculative class” of investment.
Within the SEC
The two Republican SEC commissioners agreed with GOP committee members that the current rules are ambiguous.
âThere is an obvious lack of clarity for market participants regarding the application of securities laws to digital assets and their trading, as evidenced by the requests for clarity that each of us receives and the constant communication with the Commission staff for lack of action and other relief, âCommissioners Hester Peirce and Elad Roisman wrote in a declaration.
Read more: Crypto market cap drops 11% on bitcoin rout
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