Last Updated: 7 August 2022
A former advisor to the US Securities and Exchange Commission (SEC) has warned the agency of a “serious mistake.” Professor J. Verret caught rumours of an SEC investigation into Coinbase and some other exchanges and has his thoughts on the matter.
SEC shoots itself in the foot
According to Verret, it is the SEC’s view that most tokens are securities under US law. A security is, in fact, a financial product that can best be compared to a share. Securities are investment products with a certain profit expectation. This includes securities that directly entitle the holder to a share in the profit and securities that indirectly benefit from growth also.
In his opinion piece for the Wall Street Journal, Verret claims that innovation forces us to rethink securities legislation. If that legislation does not fit the new technology, then a solution must be found. According to Verret, it should be a solution that does not stand in the way of innovation. Verret believes that “certain facets” of crypto would “shock the legislators who drafted the securities laws in 1933.”
On that basis alone, he believes that the legislation, which thus dates back to 1933, no longer fits the digital age. “Even if the projects want to register themselves the way they should, they can’t,” Verret said. After all, most projects don’t have a CEO or other forms of governance that have anything to say about strategy. They are decentralised platforms without a direct board.
The SEC is always too late
Professor Verret is clearly no fan of the SEC. “They were 10 years late when it comes to filing financial results digitally […] also allowing CEOs to share company information via social media came too late […] They shouldn’t make the same mistake with crypto,” Verret said of the SEC.
Innovation, according to Verret, also requires innovation from legislators. If they are not able to do that, then you get the problems we see today. According to Verret, it is not yet too late, but things must happen quickly before parties like the SEC start making mistakes. If it is up to Verret, it is time to create clarity.
Legislator must make a distinction
According to Verret, it is up to the legislator to make a distinction between cryptocurrencies that act as money and cryptocurrencies that act as a security. “As with normal money, it is possible to pay for goods with crypto. Bitcoin is one example that has a growing base of thousands of merchants who accept it as a means of payment through the Lightning Network. […] Last week, I used tokens that, according to the SEC, were unregistered securities in the past to buy an ice cream and a burrito,” said Verret.
With the latter, he means that it is not at all easy to distinguish between money and securities when it comes to crypto. Some coins that were considered securities in the past can now also be used as means of payment. As long as this distinction is difficult and we are entering a grey area, Verret says you can’t just subject legitimate parties like Coinbase to an investigation.