Gensler lays out paths for crypto compliance, criticizing Binance and Coinbase

Quick Take

  • The U.S. Securities and Exchange Commission chair highlighted the multiple registrations crypto projects could use to comply with securities law.

U.S. Securities and Exchange Commission Chair Gary Gensler used a Thursday speech to lay out multiple paths for crypto projects to register with the agency. He also took shots at Binance and pushed back on arguments made by Coinbase, both companies the subject of lawsuits the regulator filed earlier this week. 

The prepared remarks reflect Gensler’s strongest public pushback against the crypto industry yet. The SEC chair ran through a list of possible registrations crypto firms could use to come into compliance for the sale of digital assets, though only a handful have to date. 

“We have flexible rules for the disclosures required in registration  statements—Regulation S-K and Regulation S-X—and exemptions from registration, including Regulation A or Regulation D,” Gensler said in remarks prepared for delivery at the Piper Sandler Global Exchange and Fintech Conference in New York. “Thus, crypto security issuers need to register the offer and sale of their investment contracts  with the SEC or meet the requirements for an exemption.”

The SEC chair also pointed out guidance that the agency issued to token projects and intermediaries years before he arrived at the markets regulator. 

“We’ve also provided years of guidance to market participants on what does or does not constitute a crypto asset security, including the DAO report in 2017 and the staff’s ‘Framework  for ‘Investment Contract’ Analysis of Digital Assets’ in 2019,” said Gensler. “More than 100 Commission orders, settled actions, and court decisions also have made clear when the offer and sale of a token is a security, including our actions against Telegram, LBRY, and Kik.”

Coinbase, Binance lawsuits

Gensler referenced the SEC’s recent action against Coinbase and implicitly pushed back on the company's public arguments that it did not know how to comply with securities law. Coinbase CEO Brian Armstrong spoke at the same conference the day before.

"When crypto asset market participants go on Twitter or TV and say they lacked ‘fair notice’ that their conduct could be illegal, don’t believe it. They may have made a calculated economic decision to take the risk of enforcement as the cost of doing business,” Gensler argued. 

But the SEC chair saved his harshest criticism for Binance. Gensler noted that his agency has internal communications that allegedly show Binance executives knowingly breaking the law. He quoted some of it in the speech. 

“According to our complaint against Binance, as a result of the SEC’s action against Kik, Binance insiders realized that they would need to ‘start prepping everything’ for a subpoena and Wells notice relating to their exchange token, BNB, including a ‘War chest,’” Gensler said.  

Gensler also noted that the SEC believes Binance and Binance.US redirected billions in customer assets to investment vehicles also owned by CEO Changpeng ‘CZ’ Zhao, in an echo of similar allegations made against collapsed crypto exchange FTX and its founder Sam Bankman-Fried. The agency has also accused Binance of lying to customers about where their assets are kept and actively manipulating the market against them. 

Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.

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