The Securities and Exchange Commission was founded on principles of transparency, fairness, full disclosure, and stable regulation, taking into account the economic impact of its regulations and the well-being of investors. It is these principles that I sought to uphold during my tenure at the SEC earlier in my career.
Yet with regard to digital assets, the SEC has lost its way. This has become clear to me in my current role as interim CEO of Binance.US and through my prior experience as general counsel of Ripple.
The SEC is attempting a jurisdictional land grab of digital assets when no such thing has been authorized by Congress or by the courts. Instead of working with legislators and agencies to put in place a comprehensive regulatory scheme—rules adopted after prudent cost-benefit analyses and public comments—the SEC is bringing one-off enforcement cases to mark its territory at tremendous cost to the U.S. economy and the agency’s credibility. This is not the way the SEC should be addressing new, innovative financial instruments and technologies.
Even SEC Commissioner Elad Roisman has decried the “decided lack of clarity for market participants around the application of securities laws to digital assets and their trading.” And SEC Commissioners Mark Uyeda and Hester Perice have condemned the development of new interpretations of existing statutes and rules through the enforcement process rather than rulemaking.
In Congress, members of the House Financial Services Committee have criticized the SEC’s approach to crypto as leaving the industry “without clear rules of the road.” Elsewhere, the executive branch has not yet decided what digital assets are, and other regulators all characterize digital assets as something other than securities. But instead of listening, current SEC leadership has determined not to engage in meaningful dialogue or find a middle ground.
In his early hearings before Congress, the current SEC chairman himself stated that his agency didn’t have the power to regulate crypto, and he asked Congress to provide that power. Since then, he’s abandoned that position without any kind of explanation, and has made the claim that language in an 80-year-old Supreme Court decision is enough for him to entirely regulate a new industry valued in the trillions of dollars and in which 1 in 5 Americans has participated.
The chairman’s approach has baffled federal courts. As U.S. District Judge Katherine Failla stated: “I am just trying to figure out how folks involved in the industry can know that a particular crypto asset with which they are involved is not going to be found at some later date by the Commission to be a security.”
Moreover, the same SEC that now attempts to drive digital assets entities out of business gave express permission to Coinbase to go public. Yet less than 18 months later, the SEC alleges that that very same business is illegal. That means the SEC allowed millions of investors to purchase billions of dollars of shares in an illegal business. Investor protection? Hardly.
The SEC has also brought an enforcement action against my company, Binance.US, as well as Binance.com for alleged violations of securities laws. Separately, multiple other U.S.-based regulators also brought lawsuits against Binance.com that it’s now resolved. While Binance.US was not named in these other actions, we recognize we must work to reestablish the trust of our customers and regulators. We are vehemently disputing the SEC’s charges, however, which we believe are not supported by settled law or the facts of this case.
Fortunately, there are remedies to which the SEC can turn.
First, provide fair notice. Give the industry the rules of the game before the game actually begins.
Second, abandon all arbitrary and capricious efforts to kill crypto. Today, it is impossible for the digital asset industry to comply with current regulations. How are industry participants to follow the law if it changes on the whims of the SEC’s leadership?
Third, recognize that the digital asset industry is a major player in the American economy and work with Congress to design effective regulatory framework.
In the meantime, my company and industry are determined to continue the fight. The benefits provided by digital assets, and the impact of the regulatory abuses used against them, are too important not to address head on. Equally important is the American tradition of standing up to government overreach. I proudly count myself as part of that tradition.
Norman Reed, interim CEO of Binance.US, previously served as general counsel at Omgeo LLC, Ripple, Carta, Nanopay, and Onsa, having earlier worked in market regulation and enforcement at the SEC and at the Federal Reserve Bank of New York.
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Disclaimer: Binance is a Fortune Crypto sponsor. The latest Binance-SEC hearing in Judge Amy Jackson’s court is scheduled for Jan. 22.
