‘You Know What the Rules Are,’ Gensler Tells Crypto Industry

Securities and Exchange Commission Chairman Gary Gensler, speaking Tuesday at the 2023 Securities Enforcement Forum in Washington, D.C., argued that existing law is adequate to bring enforcement actions against non-compliant firms in the cryptocurrency industry.

Gensler has been widely criticized by Congressional Republicans for not issuing regulations that clarify the status of cryptocurrencies as securities. His response Tuesday, as it has been elsewhere, is that the Howey Test, which defines a security as an “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others,” is adequate clarification, and there is nothing for the SEC to add.

“You know what the rules are,” Gensler said, addressing the cryptocurrency industry.

The Howey Test is derived from the 1946 U.S. Supreme Court decision in SEC v. W.J. Howey Co.

Cryptocurrency investors are “no less deserving of protections than other investors,” Gensler argued, and the securities laws were not written so as to apply “only to stocks and bonds.”

The often soft-spoken Gensler repeated many of his favorite phrases when it comes to crypto markets: that it is “rife with scams, abuse, bankruptcies and money-laundering” and that the industry is unique in its “wide-ranging non-compliance” with securities laws.

Gensler specifically cited inadequate disclosures and the commingling of functions as two common violations. “We would never allow the New York Stock Exchange or a hedge fund or a broker/dealer to do what crypto dealers are doing.”

The comments come 12 days after the SEC declined to appeal a ruling ordering it to reconsider an application from Grayscale Investments to create a bitcoin exchange-traded fund. The application is expected by industry watchers to be approved in January 2024, along with other, similar ETFs.