Monday, December 11, 2023

How are cryptocurrency companies responding to enforcement actions by US regulators?

US regulators, including the Securities and Exchange Commission (SEC), have ongoing civil cases against major cryptocurrency companies such as Binance, Coinbase and Ripple, but not all companies have been treated equally.

Gary Gensler, who has been SEC Chairman since 2021, has been widely criticized by many lawmakers and industry leaders for his “regulation through enforcement” approach to cryptocurrency companies and offerings. In some cases, what could be considered a security in the United States has been decided in federal courts, and all judges’ decisions have not necessarily been in favor of the regulator.

The commission filed a lawsuit against Ripple in December 2020 over XRP as an alleged unregistered offering, but won a partial summary decision in July that indicated the token was largely not a security. Coinbase, which appeared to be expecting legal action ahead of the SEC’s lawsuit filed in June, contacted the regulator in response to its case, claiming that the exchange attempted to “register” unsuccessfully and without adequate feedback.

Prometheum, a cryptocurrency company that received widespread media attention in June after co-CEO Aaron Kaplan testified before the House Financial Services Committee on the regulation of digital assets, has received approval from the Financial Industry Regulatory Authority. as a specialty broker-dealer (SPBD) for digital assets securities in May. Some of the company’s subsidiaries, which also trade in digital assets, have successfully registered with the SEC.

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“Prometheum was specifically designed to comply with federal securities laws and create the first digital asset securities trading platform subject to these laws, including investor protections,” Kaplan told Cointelegraph.

Kaplan’s approach would suggest that certain companies such as Coinbase, Binance and Ripple launched services in the US without necessarily considering regulatory compliance. Major players have sometimes advocated for legislation that favors cryptocurrency companies: Coinbase CEO Brian Armstrong has been a regular presence in Washington DC, encouraging users to support political candidates who support pro-crypto policies.

According to Prometheum’s co-CEO, certain cryptocurrency companies have “worked to rewrite or change existing laws to their benefit and to the detriment of retail investors,” speculating that the current framework is unable to handle digital assets. Many industry leaders and lawmakers have expressed similar concerns, saying U.S. cryptocurrency companies face an uphill battle when it comes to identifying which digital assets count as securities.

Kaplan said the fact that Prometheum was able to obtain an SPBD license was evidence that regulatory compliance was at least possible. However, the approval has led to advocacy groups, including the Blockchain Association and cryptocurrency-focused members of Congress, calling for an investigation into the company.

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“We fear that the (SEC) has given Prometheum preferential treatment in return for supporting the Commission’s policy goals, or that Prometheum is using personal connections to the Commission to gain an unfair advantage in the market,” Blockchain said. Association in July. “Most importantly, we are concerned that Chairman Gensler is using Prometheum and the SPBD licensing process as a means to hamper Congress’ legislative efforts by continuing to promote the false narrative that the law is of value digital assets are already clear.”

Kaplan added:

“From the moment Prometheum received its SPBD license, there was a seemingly concerted effort by multiple industry associations and legislators to discredit the more than six years of hard work we put into building our company.”

It is unclear whether Prometheum’s approach will work for existing players in the space that are trying to avoid enforcement actions or for new projects that are aware of the regulatory challenges in the United States. David Hirsch, head of the SEC’s cryptocurrency enforcement division, reportedly said at a conference on September 19 that although the commission is currently embroiled in several civil cases, it will continue to take action against companies it believes are violating US securities laws violate decentralized finance projects.

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Gensler will appear before the U.S. House Financial Services Committee at a hearing on SEC oversight on September 27. According to a Sept. 22 memo, lawmakers will question the SEC chairman on issues such as digital asset custody policies and expanding the commission’s authority over cryptocurrency companies.

Nation World News Desk
Nation World News Desk
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