Crypto Vs SEC: Legal Expert Claims SEC May Be Violating the Law in Cryptocurrency Regulation

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A well-known legal expert @iampaulgrewal has ignited a debate by stating that the Securities and Exchange Commission (SEC) may be violating the law. 

Key Facts: Historical Context Reveals Shifting Stance on Crypto Assets by SEC

The crypto world is buzzing with controversy prompted by @iampaulgrewal’s damning claims of law violations, John E Deaton has embarked on a meticulous review of key facts surrounding the SEC’s treatment of cryptocurrencies. 

As Mr. Deaton stated that the SEC lacked a comprehensive policy regarding the ownership of cryptocurrencies by its staff. Given that digital assets were a nascent asset class, the regulatory implications remained uncertain during that period.

Fast forward to 2018 when Hinman, a senior official at the SEC, delivered a notable speech addressing digital assets. He declared that popular cryptocurrencies such as Bitcoin (#BTC) and Ethereum (#ETH) should not be considered securities. It was during this time that the SEC acknowledged a “regulatory gap” concerning crypto assets, questioning the agency’s ability to effectively regulate them.

Moving ahead to 2019, the Annual FSOC Report, signed by prominent figures such as Jerome Powell, Chair of the CFTC, and the Treasury Secretary, highlighted the increasing market capitalization of “VIRTUAL CURRENCIES.” Notably, Chairman Clayton signed the report without referencing U.S. securities laws, bringing attention to the regulatory uncertainties surrounding cryptocurrencies.

Examining Legal Precedents & Judicial Landmarks

In early 2021, during his confirmation hearing, current SEC Chair Gary Gensler acknowledged the existence of a “regulatory gap.” He emphasized that there was no established regulatory framework for crypto companies, as they fell outside the purview of both the CFTC and SEC frameworks.

To further analyze the situation, it’s important to examine past legal precedents. Notably, there has never been a case in U.S. history that found an investment contract to exist between a promoter/issuer and a buyer without any direct relationship between them. Similarly, no case has determined that the secondary sale of an asset used in an investment contract qualifies as an investment contract itself.

Drawing upon legal decisions, @iampaulgrewal references a significant case involving West Virginia versus the Environmental Protection Agency (EPA). The Supreme Court invoked the Major Questions Doctrine to strike down the EPA’s unauthorized expansion of powers without proper Congressional authority. In a similar vein, another case in Nebraska also cited the Major Questions Doctrine, rejecting an agency’s unauthorized use of power.

@iampaulgrewal meticulously studied the Major Questions Doctrine presented in the Nebraska case, focusing on pages 19 to 26. By substituting “Secretary” with “Chair” and “digital asset” with “student loans,” he contends that the SEC’s interpretation of “investment contract” infringes upon the law.

 Increasing Support for Legislative Changes in Crypto Regulation

Shifting our attention to the political landscape, both the Senate and the House have proposed legislation addressing the regulation of crypto assets. These bills aim to either limit the SEC’s jurisdiction or reduce its role in overseeing cryptocurrencies. Some proposals even go as far as seeking to remove Chair Gensler from his position.

Additionally, even the recent Executive Order signed by the President seems to favor the Commodity Futures Trading Commission (CFTC) over the SEC, signaling a potential shift in power dynamics.

As the @iampaulgrewal’s accusations of SEC Chair Gensler and the agency violated the law may not be mere hyperbole. As it becomes evident that the SEC’s regulatory approach to cryptocurrencies faces increasing scrutiny.