The criticism of the SEC for “regulating through enforcement actions” is baseless, according to Gurbir Grewal, the agency’s Director of the Division of Enforcement. In a recent fireside discussion, Grewal dismissed the notion of “regulation by enforcement” as a tired refrain, insisting that the agency is acting in the public’s best interest.
Since the collapse of crypto exchange FTX, the SEC has tripled its enforcement actions against digital assets companies, causing public backlash from the industry. However, Grewal defended the agency’s actions, citing the crypto industry as creating the “perfect storm of investor risk,” and therefore, justifying the SEC’s focused targeting of the industry as essential.
Grewal, echoing SEC Chair Gary Gensler, argued that the real issue is not the lack of understanding of the rules but rather that individuals don’t appreciate the rules being applied to their projects. Gensler has repeatedly criticized crypto companies for claiming that more regulatory clarity is needed.
The SEC’s process for deciding which firms to target in enforcement actions is strategic, insisted Grewal, countering the perception that the SEC’s approach is random. “When we are evaluating which cases to bring…we need to think about where we can address investor harm. We have to be thoughtful about bringing the cases that will have the most impact.”
Grewal cited his encouragement of the agency to have “robust and early” exchanges with companies, rather than withholding evidence until a case goes to trial. Open and fast discussions of violations create a safer environment for investors and serve the public’s best interest, he noted.
Innovation in the crypto space has occurred within the confines of existing regulations, Grewal emphasized. The SEC’s objective, he said, is not to stifle progress but to combat fraud.
Opponents of the SEC’s approach argue it stifles innovation and question its justification. However, with the exponential growth witnessed in the digital assets market and the increasing number of fraud cases, regulatory bodies will continue to face pressure in striking a delicate balance between protecting investors and fostering innovation. The SEC’s “regulation by enforcement” strategy may help deter potential fraudulent activities and provide clarity in unregulated markets, but only time will tell if it proves the most effective approach.
Source: Blockworks
