Gensler compares crypto market to 1920s stock market, cites prevalence of fraudsters.

During a speech on June 8 at the Piper Sandler Global Exchange & Fintech Conference, Gary Gensler, the Chair of the United States Securities and Exchange Commission (SEC), likened the current crypto market to the U.S. stock market of the 1920s, which was full of “hucksters,” “fraudsters,” and “Ponzi schemes.” Gensler argued that, just as Congress had cleaned up the stock market by enacting securities laws, the current SEC could also clean up the crypto market by applying these laws.

JUST IN: SEC Chair Gary Gensler says crypto is all “hucksters, fraudsters, scam artists.” pic.twitter.com/1xRWUMzbel

— Milk Road (@MilkRoadDaily) June 8, 2023

During his speech, Gensler praised the Securities Act of 1933 and the Securities Exchange Act of 1934, saying that these laws allowed the U.S. securities markets to “thrive” over the next 88 years. He argued that the “crypto securities markets” of today should also benefit from these laws because they are not “less deserving of the protections” they provide.

Gensler pointed to a court ruling against Telegram Open Network to argue that crypto asset securities are not exempt from securities laws, even if they have utility.

“Some promoters of crypto asset securities contend that their token has a function beyond simply being an investment vehicle,” Gensler stated. ” As the courts in the Telegram case and others have said, however, some additional utility does not remove a crypto asset security from the definition of an investment contract.”

Related: SEC’s crypto actions surged 183% in 6 months after FTX collapse

According to Gensler, this means that crypto security exchanges must comply with securities laws, including the requirement to separate “the exchange, broker-dealer, and clearing functions.” In his view, this separation “helps mitigate the conflicts that can arise with the commingling of such services.” He denied that this separation isn’t possible, saying that separating these three functions simply requires work.

Gensler argued that the current crypto market is rife with scams that have arisen because of the industry’s lack of compliance with securities laws, stating:

“With wide-ranging noncompliance, frankly, it’s not surprising that we’ve seen many problems in these markets. We’ve seen this story before. It’s reminiscent of what we had in the 1920s before the federal securities laws were put in place. Hucksters. Fraudsters. Scam artists. Ponzi schemes.”

Gensler believes that the solution is to ensure that crypto securities issuers comply with the law. This is because these scams are “more likely to happen in markets whose issuers and intermediaries fail to comply with foundational laws.”

Gensler has been heavily criticized within the crypto industry as the Chair of the SEC. This is particularly true since the SEC filed lawsuits against crypto exchanges Binance and blockchain. Critics argue that Gensler has an overly expansive view of the SEC’s regulatory authority and is driving innovation out of the U.S.

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