Yahoo Finance SEC Chair: Investors need to know 'somebody is not lying to them'
As Celsius Network became the third major crypto lender to file for bankruptcy on Wednesday — costing investors millions — SEC Chair Gary Gensler suggested rules that apply to traditional brokerages to protect investors in the event of a brokerage failure could also apply to crypto.
However, Gensler says tailoring the disclosure regime for stocks to crypto likely makes sense, given disclosures for stocks may not be the same as a crypto token.
“Just as there's difference between asset-backed securities and an equity offering, there may be differences here as well,” Gensler told Yahoo Finance in an exclusive interview.
“The public benefits by knowing full and fair disclosure and that somebody is not lying to them…basic protections and whether you're buying a crypto token or a security such as equities or a security such as an asset-backed security, those basic disclosures.”
Crypto lenders, including Celsius and Canada’s Voyager, lured investors with eye-popping, double-digit yields for lending out crypto deposits. Many Voyager customers assumed their deposits were insured by the FDIC, but learned otherwise after Voyager filed for bankruptcy, prompting the agency to look into the potential false marketing.
“The person raising the money and selling you those financial assets ought to not defraud you, ought to give you the information so you can make your decisions,” said Gensler.
Despite the failure of disclosures by lenders, Gensler says there are paths forward for crypto lending companies.
Gensler has said repeatedly that many crypto tokens fall under securities laws given how they are used and that most tokens, other than Bitcoin and maybe Ethereum, should register as securities. Additionally, any platform trading these tokens ought to register as an exchange.
Gensler told Yahoo Finance the SEC has the ability to write rules and use exemptive authority, but the public is not protected largely because of the noncompliance in this space. While the SEC has taken enforcement actions to make crypto firms comply with securities laws, the Commission has yet to apply or write new rules to protect investors in crypto markets.
When asked why the SEC hasn’t acted more aggressively to write rules to protect investors, Chair Gensler said he rejected the premise. “We have rules in place for what it means to be an investment company, like a mutual fund, when you put your money in,” said Gensler. Gensler pointed to enforcement actions the Commission has taken against crypto firms that violated securities laws, specifically, crypto company BlockFi.
In February, the SEC accused BlockFi of selling unregistered securities, operating as an unregistered investment company in making, "material false and misleading statements" on its website, while levying a $100 million fine in conjunction with 32 other states.
But analysts and others remain baffled that the SEC hasn’t taken action to apply the equities disclosure regime rules to crypto.
“What we find perplexing is why Gensler has yet to back his words with actions,” says Cowen analyst Jaret Seiburg. “The SEC could have filed enforcement actions against these tokens and platforms. In fact, some would say it has been required to bring enforcement actions if the agency believes tokens are securities as they are all unregistered, which makes them illegal.”
Gensler says the SEC is continuing to speak with crypto exchanges, lending platforms, and the broker-dealers about how to come into compliance, or, he says, “modify that compliance.”
When it comes to stablecoins, Gensler says it may be appropriate for Congress to weigh in to ensure financial stability. The chair also compared stablecoins to money market funds. Gensler has flirted with the idea of considering regulating stablecoins in a fashion similar to money market funds.
“A lot of these tokens also have attributes similar to money market funds,” said Gensler. “They have taken money from the public and then the public, in the way they use them, they're getting yields or rewards... on these stablecoins.”
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Jennifer Schonberger covers cryptocurrencies and policy for Yahoo Finance. Follow her at @Jenniferisms.
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