As the cryptocurrency market has started to reel from the fallout of the legal action started by the United States Securities and Exchange Commission (SEC) against two major crypto exchanges, Binance and Coinbase, the former attorney for the SEC Enforcement Division has urged investors to abandon crypto.
Indeed, John Reed Stark went into detail on why he believes crypto investors should walk away from cryptocurrency firms, stating that “crypto trading platforms are under a U.S. regulatory/law enforcement siege which has only just begun” in a long tweet he shared on June 8.
That said, he believes that the agency is in the right to carry out such activities because, in his view, crypto firms are dangerous to their customers:
“My take is that the SEC is spot-on with their crypto-related enforcement efforts. No matter what the carnival barkers promise, it is axiomatic that crypto trading platforms are high-risk, perilous, and inherently unsafe.”
Furthermore, Stark went on to explain that the SEC lacks any sort of control and access” to crypto exchanges and only has “scant ability to detect, investigate, and deter” frauds, unlike traditional financial firms that have registered with the agency.
Perceived crypto issues
In turn, he said, the sector has no “transparent surveillance program provided by an SEC-registered broker-dealer or investment advisor; the ability to detect individual misconduct and (…) violations [or] to (…) verify market trading and clearing activity, customer identities and other critical data for risk and fraud; traditional accountability structures and fiduciaries (…); and the compliance (…) personnel and infrastructure that allows the SEC to know where crypto came from or who holds most of it.”
As such, he argues that crypto platforms have “no record-keeping (…) requirements with respect to operations, communications, trading, or any other aspect of the business; [nor] regarding the pricing or (…) transactions or the use of internal platforms and payment systems by employees; [and] no reason to abide by U.S. statutes and rules prohibiting manipulation, insider trading, trading ahead of customers, and other fraudulent behavior.”
On top of that, he claims that these businesses have “no obligation [of] internal compliance, customer service, and whistleblower teams to address (…) customer complaints; (…) no minimum financial standards for operation, liquidity, and net capital, and no U.S. governmental team of objective auditors and examiners to inspect and scrutinize the fairness, execution, and transparency of transactions.”
Finally, he said that the “SEC registration establishes critical requirements that protect investors from individual risk and protect capital markets from global systemic risks,” as well as “make U.S. markets among the safest, most robust, most vibrant and most desirable marketplaces in the world.”
However, Stark seems to have skirted one important argument that some of the affected crypto firms have pointed out before, which is the lack of clarity on the rules or the SEC’s ability to accept or approve applications to register such companies.
Earlier, Coinbase filed a legal petition asking the SEC to provide this clarity, and the US Court of Appeals has recently given the agency a seven-day deadline to respond to the demand with a clear answer on whether it intends to decline the request and why.
Meanwhile, Brad Garlinghouse, the CEO of Ripple, another crypto business that the SEC has sued, has stated that there was no existing framework to register digital assets in the US as he replied to claims by venture capitalist Jason Calacanis that the blockchain company did not want to “play by the rules like everyone else in the industry.”
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