Coy Garrison, a partner at Steptoe and Johnson LLP and former counsel to U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce, said in his testimony during a Congressional hearing on digital assets last week that blanket statements classifying most digital assets as securities or non-securities neglects the “complexity” of the question, which is at the heart of several ongoing lawsuits against cryptocurrency exchanges.
Garrison's remarks came during a June 13 House Financial Services Committee hearing titled "The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem," during which lawmakers discussed the recently released Digital Asset Market Structure Discussion Draft.
“The SEC has increasingly asserted its authority over digital asset trading platforms in recent weeks. The legal analysis of whether any particular digital asset is sold pursuant to a security in any particular transaction requires a facts-and-circumstances consideration of the economic realities of the transaction, which involves nuance and judgment," Garrison said in his testimony. "Sweeping statements that nearly all digital assets are securities, or are not securities, ignore the complexity of the analysis and distract from finding a workable solution to the numerous legal and regulatory issues involved in this context.”
The hearing took place shortly after the SEC filed lawsuits against leading cryptocurrency exchanges Binance and Coinbase for allegedly violating securities laws, with SEC Chair Gary Gensler claiming "everything other than Bitcoin" is a security and therefore falls within the SEC's regulatory jurisdiction, CoinTelegraph reported.
Financial analyst Matt Levine, a former attorney and investment banker, wrote in his "Money Stuff" newsletter that the "key legal question" at the heart of both lawsuits is whether the digital assets listed by Binance and Coinbase are securities or not.
"If they are securities, then probably Coinbase and Binance (and Bittrex and everyone else) are operating illegal securities exchanges; if they are not securities then everything’s fine," Levine wrote. "Just being a crypto exchange in the U.S. is, in the SEC’s eyes, illegal.”
Lawmakers have voiced criticism of the SEC's approach to regulating the crypto industry and called for clearer guidelines for industry participants, such as Sen. Cynthia Lummis (R-WY), who said in a June 15 tweet, "More than 50 million Americans own a crypto asset. We need to establish clear rules of the road that protect consumers and encourage financial innovation but limit the regulatory overreach that the SEC is currently engaging in."
Democrat Congressman Ritchie Torres said Gensler and the SEC are undermining Congress’s efforts to legislate comprehensive regulations for the crypto industry.
“The latest enforcement action against Coinbase is an egregious example of regulation by enforcement,” Torres told MarketWatch. “It demonstrates a complete contempt for Congress which is in the process of developing a [regulatory] framework.”
Coinbase CEO Brian Armstrong responded to the lawsuit against his company with a tweet, saying, "We're proud to represent the industry in court to finally get some clarity around crypto rules."
Binance responded to the lawsuit in a blog post, saying the company is “disappointed” that the SEC has chosen this path, especially at a time when the industry is looking for more regulatory clarity.
"Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry," the post said.