A former Securities and Exchange Commission (SEC) official has slammed “cryptocurrency lobbyists” for labeling SEC enforcement actions as “regulation by enforcement” — calling the term a “Bogus Big Crypto Catch Phrase.”
John Reed Stark, a former chief of the Securities and Exchange Commission Office of Internet Enforcement and a crypto skeptic, opined in a Jan. 22 post that the argument is “sorely misguided” as it was just how securities regulations worked.
“Litigation and SEC enforcement are actually how securities regulation works,” he argued. “The flexibility of SEC statutory weaponry is an SEC hallmark, enabling SEC enforcement to keep fraud in check.”
“In fact, the repetitive chorus of RBE [Regulation by Enforcement] is not only a misguided, deflective effort designed to tap into sympathetic libertarian and anti-regulatory mores – it’s also utter nonsense.”
According to Stark, when the SEC Office of Internet Enforcement was created in 1998, there were critics who said SEC regulations were too vague and regulation by enforcement would stifle the growth of the Internet.
“In hindsight, relying upon the flexibility of securities regulation to police the Internet cleared out the more egregious instances of early online securities fraud,” he argued.
“Moreover, vigorous online SEC enforcement efforts also paved the way for legitimate technological innovations to flourish, rendering markets more efficient and transparent, thereby allowing investors more opportunities for success,” he said.
Over the last few years, the SEC has launched more than a few high-profile cases against crypto companies such as Ripple and LBRY, prompting some critics to label the SEC as using enforcement actions to develop the law on a case-by-case basis rather than creating clear regulations.
Regulation by enforcement has a terrible chilling effect, and rhetoric matters – we’ve already seen a huge amount of crypto talent, asset issuers, and startups go offshore.
— Brian Armstrong (@brian_armstrong) September 20, 2022
Ripple General Counsel Stuart Alderoty has also previously questioned the approach in a Nov. 28, 2022 post, citing the high-profile collapse of FTX and the related contagion that claimed BlockFi as evidence it doesn’t.
Another SEC “regulation by enforcement” success story.
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