Bulletins

SEC should go after 'big fish' crypto exchanges, US lawmaker says

The leader of the House's investor protection subcommittee criticized the SEC for pursuing Ripple over XRP but not challenging exchanges that offered the cryptocurrency.

SEC headquarters in Washington

The SEC has been in an intense court battle over whether the XRP cryptocurrency is a security.

Photo: Saul Loeb/AFP via Getty Images

The Securities and Exchange Commission should be going after crypto exchanges that offered XRP, the chairman of the House investor protection subcommittee said Tuesday.


In an oversight hearing closely watched by supporters of Ripple and the XRP cryptocurrency, California Rep. Brad Sherman questioned SEC Enforcement Director Gurbir Grewal on why the agency isn't investigating exchanges that offered the XRP cryptocurrency.

“You've gone after XRP because XRP is a security, but you haven't gone after all the major crypto exchanges that process tens of thousands, if not far more, transactions,” said Sherman, a Democrat representing parts of the Los Angeles metro area. “If XRP is a security — and you think it is, and I think it is — why are these crypto exchanges not in violation of law?"

Whether XRP is in fact a security is subject to one of the most intense ongoing court battles in crypto. The SEC sued Ripple in December 2020, accusing the company of failing to register roughly $1.4 billion worth of XRP as securities. Ripple, however, maintains XRP is a utility token for payments, not a speculative asset, and that it was issued prior to Ripple’s founding.

Grewal said he can’t “talk about what matters we are looking at or not looking at,” but noted the SEC had brought a case against the crypto exchange Poloniex for offering unregistered securities.

Sherman countered, “It's easier to go after the small fish than the big fish, but the big fish operating the major exchanges did many, many, tens of thousands of transactions with XRP. You know it's [a] security, that means they were illegally operating a securities exchange.” He added that many exchanges have stopped offering XRP.

Grewal noted that SEC has beefed up its crypto-focused enforcement team but said it would be inappropriate to comment further.

Sherman said the SEC is “going to have to take on some cases you are not certain of winning.”

Ripple has aggressively fought the case in court and its CEO, Brad Garlinghouse, recently told Protocol the firm would leave the U.S. if it lost. The judge overseeing the case recently ordered the SEC to produce documents related to the case sought by Ripple and called out the SEC for "hypocrisy" in fighting the release.

Shortly after the hearing, Ripple General Counsel Stuart Alderoty called for a "fact check on aisle 2," noting that the mere filing of a case by the SEC does not make XRP a security. "Only the court can make a determination — it's called due process," Alderoty said in a tweet. "This is the pernicious effect of the SEC’s (regulation) by enforcement approach – harming people, markets and American innovation – with unproven allegations masquerading as regulation."

More clarity from lawmakers on securities regulation would be helpful, Sherman acknowledged in closing the hearing, which also covered enforcement of the SEC’s climate disclosure rules and the gamification of investing.

“No definition is more important than to define security, since that's what the SEC does,” Sherman said. “Congress really hasn't acted. Courts have acted with the Howey Test, which was not focused on digital assets, as it was written in the 1940s.”

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