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The beleaguered crypto industry is getting a bit more beleaguered. On Thursday, the Securities and Exchange Commission announced it’s suing two crypto exchanges — Genesis Global Capital and Gemini Trust Company — for “unregistered offer and sale of securities to retail investors.”
Now, there are all sorts of personality conflicts and allegations flying back and forth among founders and investors. But this marks the latest efforts by federal authorities to regulate an industry that’s still pretty unregulated.
The SEC says the Gemini Earn program, which basically let customers loan out their crypto earnings in exchange for interest, should have been registered with the agency. It wasn’t, but Gemini and Genesis raised billions of dollars from hundreds of thousands of investors who still can’t access their money.
“The very particular issue in the case — whether or not this was a lending product that needs to be regulated — is not a highly controversial issue,” said J.W. Verret at George Mason’s Antonin Scalia Law School and a former advisor for the SEC.
The controversial issue is how the SEC is going about all this, he said. Absent more comprehensive regulations, they’re enforcing laws not specifically designed for crypto.
“We won’t tell you what is and is not a security in crypto, but when we see you step into one of these hidden traps, we’ll get you,” Verret said.
Now, of course, the SEC would probably beg to differ with that perspective. Will Cong, a professor of finance at Cornell, said he understands where the crypto companies are coming from.
“But if we take a step back and, looking at the bigger picture, there are challenges for the regulatory bodies,” he said.
The industry is changing rapidly — much faster than regulators and certainly faster than Congress can keep up with.
“For example, you don’t want to issue a set of rules and then change them two months later,” Cong said. “So we almost have to wait for the industry to evolve a little bit, then to figure out what the set of rules should be, without changing it too frequently.”
In the meantime, Cong expects even more action from regulators when it comes to crypto, because there’s a lot of pressure in D.C. for more oversight.
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