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U.S. Senators Use SEC Loss as Proof That Crypto Needs Clear Regulation

Published July 17, 2023 10:39 AM
Omar Elorfaly
Published July 17, 2023 10:39 AM

Key Takeaways

  • The United States Securities and Exchange Commission (SEC) is facing further scrutiny following the Ripple case outcome.
  • Do US Congressmen have a better understanding of digital assets than the SEC?
  • Senator Cynthia Lummis has always criticized Gensler’s SEC

Last week’s triumph for Ripple sent aftershocks through the crypto market. Crypto exchanges such as Coinbase had their hopes revitalized when it came to lawsuits filed by the SEC regarding the legal status of cryptocurrencies. 

Judge Analisa Torres ruled in favor of Ripple, a US-based crypto platform, in a lawsuit filed by the SEC that claimed that its native token, XRP was an unregistered security. The judge’s ruling declared that XRP was not a security, at least when it was being traded on crypto exchanges, as it didn’t come with a guarantee that investors will be securing profits from their investments.

Perhaps more importantly, the ruling reignited the discussion regarding the American government’s stance on crypto, with Congress members now urging the regulating body to create clear guidelines on what constitutes securities and the terms upon which the digital assets should be traded securely. 

The Senate Demands Clarity

Republican Senator Cynthia Lummis took to Twitter to celebrate Judge Torres’ ruling. She also took the opportunity to vote for a bill co-created by her that aims to provide clarity on the status of crypto and its trade.

“I applaud the decision of the Southern District of New York finding that crypto assets traded in secondary markets may not be investment contracts,” Senator Lummis tweeted .

She also added: “This is the position that 501 of the Lummis-Gillibrand Responsible Financial Innovation Act has taken from the beginning” and that “We need to pass Lummis-Gillibrand to uphold the Howey test as interpreted by the Southern District of New York”

Lummis-Gillibrand Responsible Financial Innovation Act

A major contributing factor in the SEC’s crypto dilemma is the failure to create a clear regulatory framework. Key factors include the government’s understanding of digital assets and what constitutes them as securities or commodities, taxation of sales of digital assets, and numerous terms of trade, whether by individual persons or crypto exchanges. 

In April, the biggest US-based crypto exchange, Coinbase, even filed a mandamus petition to the federal government in April, requesting that the SEC provide “clarity on regulations regarding crypto”. The SEC took their time to assess the petition and decided to provide a response that perhaps came as a disappointment for many parties involved.

The regulating body said that the “mandamus petition should be denied”, adding “Coinbase has no right to mandamus, which orders a government agency to fulfill certain duties.”

“Commission has not decided what action to take on that petition in whole or in part—which is entirely reasonable given the breadth of the rulemaking petition and the fact that it was filed just months ago and supplemented by Coinbase more recently,”

“Commission staff anticipate being able to make a recommendation to the Commission regarding Coinbase’s rulemaking petition within the next 120 days.”

Coinbase execs took to Twitter to express their disappointment and highlight what they claimed was the SEC’s inability to define such guidelines in a timely manner. Coinbase’s Chief legal officer Paul Grewal tweeted: “They [SEC] ignore the clear statements of the Chair that confirm they have no intent to issue new rules, and instead conflate the evidence of a decision those statements provide with an argument that the statements are themselves a decision.”

This brings us to the Lummis-Gillibrand Responsible Financial Innovation Act 

The proposed bill potentially satisfies the need for clear crypto trade regulations that the US Securities and Exchange Commission has filed to address. 

The bill identifies key parties involved in crypto trading, including coin issuers, crypto exchange, regulating bodies, governmental taxation bodies, individual coin holders, and traders. 

The bill says: “The Chair of the Committee may, without regard to the civil service laws (including regulations), appoint and terminate an executive director and such other additional personnel as may be necessary to enable the Committee to perform its duties, except that the employment of an executive director shall be subject to confirmation by the Committee.”

This refers to the suggestion put forth last week by the former chairperson of the Commodity Futures Trading Commission (CFTC), Timothy Massad, to create a committee comprised of both CFTC and SEC members to regulate the crypto market.

Lummis Vs Gensler

Neither the tweet nor the proposed bill count as Lummis’ first open act of criticism against the SEC’s Chair Gary Gensler

In June, Senator Lummis openly criticized the regulator, tweeting: “The SEC has failed to provide a path for digital asset exchanges to register, and even worse has filed to provide adequate legal guidance on what differentiates a security from a commodity.” 

Lummis added: “The SEC’s continued reliance on regulation by enforcement continues to harm consumers. Real consumer protection requires creating a robust legal framework that exchanges can comply with, not pushing the industry offshore or into the shadows.”

A similar sentiment was shared by Senator Bill Hagerty who tweeted: “The @SECGov is weaponizing their role to kill an industry. Allowing a company to list publicly and then stonewalling their attempts to register is indefensible.”

 

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