Will the fallout from 2022’s crypto meltdown lead to an SEC enforcement sweep targeting crypto exchanges in 2023? Former SEC Internet Enforcement Chief John Reed Stark says, “You bet!” In fact, a looming enforcement sweep tops his list of 12 crypto predictions for 2023:
An Enforcement sweep carried out by the U.S. Securities and Exchange Commission (SEC) of crypto-intermediaries is clearly coming in 2023. Senior SEC crypto-officials have promised as much too many times for a crypto-sweep not to happen. Just read the following recent quotes from the three most important SEC crypto-enforcement officials. In my experience, the SEC does not make idle threats and the “runway” no longer runneth over:
November 15, 2022: Per SEC Crypto Unit Chief David Hirsch at the SEC Enforcement Forum: “We want people to come in and register so that investors can decide on what risks they would like to take. There is a runway for crypto intermediaries and exchanges to come in and get registered, but I think that RUNWAY is growing shorter and SEC enforcement is willing to move forward and bring enforcement actions as appropriate.” (emphasis added)
December 8, 2022: Per SEC Chair Gary Gensler on Speaking with Yahoo!: “I’ve got one goal is that these platforms, the exchanges, the lending platforms come into compliance. They can do that appropriately working with the SEC. Or we can continue on the course with more enforcement actions. And I would have to say that the RUNWAY is getting shorter.” (emphasis added)
December 13, 2022: Per SEC Enforcement Director Gurbir Grewal at the DOJ FTX Press conference: “Grewal warned investors and customers to remain cautious on crypto platforms, which he said “don’t provide [customers] with the same robust level of disclosures and protections against fraud and conflicts of interest” as SEC-registered platforms do. As Chair Gensler has made clear, the RUNWAY is getting shorter for them to come in to register with us. And for those who do not, the Enforcement Division stands ready to take action.” (emphasis added)
Stark goes on to give the crypto industry a thorough — and quite entertaining — thrashing. Here’s an example:
Gensler, Gurbir and Hirsch could not say it any plainer. Fail not at your peril crypto-ecosystem, you are all squarely within the SEC’s sights. By calling themselves “exchanges,” “brokers,” and “market-makers,” crypto firms co-opt historically powerful nomenclature that implies trust, oversight and consumer protection, etc. This is a material ruse. It’s like if a drug dealing gang suddenly offered to perform brain surgery for customers, yet had never gone to med school, never done a hospital internship or residency and their only health training consisted of watching a few TikTok videos.
— John Jenkins, TheCorporateCounsel.net, January 5, 2023