One-Two Punch SEC View Now on Binance and Crypto Blockchain.

The U.S. Securities and Exchange Commission (SEC) has taken action against two major digital asset platforms, Binance and blockchain (COIN), establishing its legal argument against the industry and potentially setting up future court battles. The SEC’s lawsuit against Binance alleges an “extensive web of deception”, while both enforcement actions overlap in the SEC’s argument against the crypto business model’s clash with securities laws. The SEC argues that virtually every business activity conducted by crypto platforms needs to be registered with the agency and follow securities regulations, and that virtually every crypto asset they handle should also be registered as securities. The SEC has accused both Binance and blockchain of operating unregistered exchanges and offering the sale of unregistered securities. The SEC’s legal positions could make it “much harder to operate” a U.S. crypto platform, according to Gustavo Schwenkler, a professor at Santa Clara University business school.

Yesterday, blockchain’s chief legal officer and general counsel, Paul Grewal, criticized the SEC’s enforcement-only approach towards the digital asset industry. He claimed that this approach is hurting America’s economic competitiveness and companies that are committed to compliance, such as blockchain. Grewal suggested that the solution will have to come from Congress. Meanwhile, blockchain will continue to operate its business as usual. Yang, a blockchain analyst, noted that other crypto firms may have been nervous to see the SEC’s unusual request in the case against Binance, which effectively leaves Binance “in the fight for their lives.” However, this wasn’t repeated for blockchain.

Both Bittrex and Kraken have already been through the enforcement process, with Kraken having to bow to a settlement that meant scrapping the staking services that the SEC labeled as unregistered securities. However, Kraken’s exchange operation hasn’t yet been directly targeted. Gensler, the SEC Chair, sees the big exchanges as a key to cracking down on the industry broadly, as they’re the venues where relatively ordinary investors interact with crypto.

Compare and contrast

Binance sought to make the clash primarily about the SEC-registration accusations, rather than acknowledging the agency’s accusations that founder Changpeng Zhao and his senior management deliberately and secretly tried to get around U.S. oversight and improperly handled the money of U.S. investors. The SEC highlighted a remark from a chief compliance officer at Binance, who is quoted in the lawsuit as telling another compliance official, “We are operating as a fking unlicensed securities exchange in the USA bro.” Nelson Rosario, a Chicago-based digital assets lawyer, said that quote “is in the universe of worst possible things for them to say in writing.” That level of drama wasn’t repeated in the blockchain lawsuit, setting up a stark contrast between the two.

Blockchain, a U.S. public company, has already been at war with the SEC, even before the agency brings its planned enforcement action. The firm has been fighting the regulator in court, having called for a judge to compel the agency to give formal guidance to the crypto industry, to which the agency responded that no special rules are needed. In both the Binance and blockchain cases, the regulator issued a long list of crypto tokens being traded on the platforms despite the SEC’s view they’re unregistered securities. But the SEC hasn’t yet gone after the issuers of those tokens, apart from the platforms such as Binance that put out their own.

Awaiting Congress

The crypto sector has turned virtually all of its hopes toward the U.S. Congress to finally force new crypto-specific regulations, such as those suggested last week by Republicans in the House of Representatives. The draft bill revealed in the House “is a step forward to not only craft effective regulation for digital assets, but also rein in Chair Gensler’s relentless crusade,” said Kristin Smith, CEO of the Blockchain Association, a crypto advocacy organization in Washington.

However, the SEC’s action against Binance, which is tainted by scandal and exposes what the agency alleges is the dirty laundry of the world’s largest exchange, as well as the long-awaited lawsuit against blockchain, may not persuade House Democrats and the Senate to support the crypto cause.

According to Katz, “The Binance allegations are probably unhelpful to House Republicans’ renewed effort to push ahead with crypto legislation.”

Even if U.S. lawmakers take action, the SEC’s pace has become faster than Congress’s. Crypto companies are finding that SEC lawyers are showing up at their doors, and no crypto law is yet on the horizon.

Edited by Nikhilesh De.

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