SEC Crypto Regulations

Close up shot of Bitcoin and alt coins cryptocurrency - crypto regulation concept

As cryptocurrencies and other digital assets increase in popularity, questions will continue to arise as to which federal agency will be primarily responsible for regulating them. Because of the popularity of crypto and digital assets, the federal government plans to increase crypto regulations and enforcement of criminal laws that target its illegal use. Experts expect that regulation of this growing industry will be shared between the Securities and Exchange Commission (SEC) and the Commodities and Futures Trading Commission (CTFC). As a result of this heightened scrutiny, crypto investors should anticipate increased investigations and criminal prosecutions for the perceived illegal use of cryptocurrencies and digital assets.

US Crypto Regulations: Who Has Jurisdiction?

Gary Gensler, Chair of the SEC, has stated that “[crypto] products are subject to the securities laws and must work within our securities regime,”while Brian Quintenz, the former Commissioner of the CTFC, has said that “the SEC has no authority over pure commodities or their trading venues, whether those commodities are wheat, gold, oil…or crypto assets.”

Regardless of which agency has jurisdiction, government officials have identified cryptocurrencies and digital assets as emerging targets for enforcement. The Biden administration has indicated that it plans to regulate this market and to investigate and prosecute people for alleged misuse and abuse. Determining the extent to which each agency has jurisdiction to regulate and enforce laws related to crypto transactions will depend on how the assets are categorized and what test is applied.

SEC Jurisdiction Over Crypto

The SEC has jurisdiction over “securities,” which traditionally include investment contracts. However, the SEC does not have jurisdiction over currency. Thus, to the extent that crypto and other digital assets are defined as an investment contract, crypto would be subject to SEC jurisdiction and applicable securities laws and regulations. To the extent that crypto is deemed to be a currency, the SEC would not have jurisdiction. That being said, the SEC is, nonetheless, actively bringing civil actions in crypto cases and the United States Attorney’s Offices are prosecuting cases alleging securities fraud arising out of crypto cases.

In the case of SEC v. Howey, the U.S. Supreme Court found that an investment contract exists when (i) there is the investment of money; (ii) in a common enterprise; (iii) with a reasonable expectation of profits to be derived; (iv) from the efforts of others.

In a statement before the Senate Banking Committee on Digital Assets, then-Chair of the SEC Jay Clayton relied on the Howey test, noting that digital assets that are sold “as part of an investment; to non-users; by promoters to develop the enterprise – can be, and, in that context, most often is, a security – because it evidences an investment contract.”

CFTC Crypto Jurisdiction

In contrast, the CFTC has jurisdiction over derivatives transactions and has limited authority to regulate fraud and manipulation in commodities markets. In 2016, the CFTC made an official statement about its jurisdiction over digital assets in an enforcement action, stating that “Bitcoin and other virtual currencies are encompassed in the definition [of a commodity] and properly defined as commodities, and are subject as a commodity to the applicable provisions of the [Commodity Exchange] Act and [CFTC] Regulations.”

It is widely accepted that established and broadly decentralized virtual currencies are commodities, not currencies. They are generally not categorized as currencies because they are exchanged on a market for uniform quality and value and, therefore, fall within the common definition of a commodity under the Commodity Exchange Act’s definition of a commodity. However, it is important to note that despite the CFTC’s jurisdictional authority to regulate virtual currencies as commodities, other agencies can also regulate them when virtual currencies function differently than derivative commodities.

Even though the CFTC has determined that virtual currencies are commodities, their jurisdiction is limited to policing fraudulent and manipulative activities in interstate commerce. Beyond this type of enforcement authority, the CFTC does not oversee virtual currency transactions or exchanges that do not involve margin, leverage, or financing. As a result, many experts say that the CFTC has enforcement jurisdiction over cryptocurrency and digital assets but does not have registration jurisdiction.

Cryptocurrency and Digital Assets Will Be Subject to Increased Government Scrutiny

With the rise in popularity of cryptocurrency and digital assets, they are now the subject of enforcement actions by federal regulators in multiple agencies and will receive a much greater level of scrutiny. Both the SEC and the CFTC are asserting jurisdiction, and questions remain as to whether these agencies have sufficient authority to regulate crypto markets or whether congressional action is needed.

If you believe you are under investigation because of your use of cryptocurrency or digital assets, you must mount an aggressive legal defense. New York City federal criminal defense attorney Hope Lefeber has extensive experience defending people accused of white-collar crimes in federal court.

Ms. Lefeber began her career as an enforcement attorney with the SEC, where she learned first-hand how the government prepares and prosecutes white-collar criminal cases. She has dedicated her career to defending people who are under investigation by federal enforcement agencies or have been charged with financial crimes in federal court.

Ms. Lefeber has routinely been named as a SuperLawyer and as one of the Top 100 Lawyers by the National Trial Lawyers Association. Her clients find that she is meticulously prepared and has a strong courtroom presence and vast knowledge of federal criminal law. Ms. Lefeber has won numerous acquittals on behalf of her clients and has earned a reputation as a fierce and tenacious defender of her client’s rights.

To learn more about Hope Lefeber, read testimonials from other people she has represented, then contact Ms. Lefeber today to schedule a confidential consultation to discuss your situation and how she can help.

Categories: Federal Law