Here come the Crypto Cops

The SEC is beefing up its ranks, triggering fears that Gary Gensler is gearing up for a major enforcement offensive against the industry with a new team that’s already been dubbed the “crypto cops."

With the hiring binge, the SEC chair seems to be showing he’s unfazed by criticisms of his “regulation by enforcement” approach. But it could generate more heat for the SEC, especially after one of Gensler’s fellow commissioners pushed back on the agency’s seeming prioritization of enforcement over rule-making.

Investors need more protection. The SEC is adding 20 new positions and renaming the agency’s Cyber Unit to create a 50-person team now called the Crypto Assets and Cyber Unit. (We still like “crypto cops” better.)

• Nearly doubling the size of “this key unit” means the SEC “will be better equipped to police wrongdoing” and to go after “those seeking to take advantage of investors in crypto markets,” Gensler said in a statement. The team will also focus on identifying “disclosure and controls issues with respect to cybersecurity."
• The original team has been busy since it launched in 2017, bringing “more than 80 enforcement actions related to fraudulent and unregistered crypto asset offerings and platforms,” the SEC said. The team has recorded monetary relief of more than $2 billion.
• Crypto is much bigger now. The SEC must deal with new trends like NFTs, stablecoins and “lending and staking products.” The expanded team will “bolster the ranks of its supervisors, investigative staff attorneys, trial counsels, and fraud analysts in the agency’s headquarters in Washington, D.C., as well as several regional offices,” the SEC said.

Why the focus on enforcement? That was SEC Commissioner Hester Peirce’s reaction. “The SEC is a regulatory agency with an enforcement division, not an enforcement agency. Why are we leading with enforcement in crypto?” she asked in a tweet.

• The SEC is supposed to also be making rules based on existing securities laws, but “any moves toward rule-making appear completely separate,” Marc Fagel, the SEC’s former regional director for San Francisco and now a lecturer at Stanford Law, told Protocol. With the crypto cops, he said, “we can expect more investigations and enforcement actions in the crypto space.”
• Jerome Tomas, a partner at Baker & McKenzie and a former SEC attorney, agreed: “Safe money here is on many more investigations.” In fact, he thinks joint investigations between the SEC and the CFTC are likely. The CFTC has also sought more money for digital assets oversight.
• Mike Fasanello, chief compliance officer of LVL, a banking and crypto trading company, said that he’s concerned that more enforcement actions by the SEC “will stifle innovation in an emerging market.” He called it “regulatory overreach, plain and simple.”

Is the SEC going too far? Even without action by Congress to clearly define responsibility for oversight of crypto, Gensler has many tools at his disposal for regulating the space. Industry leaders agree they need regulation, and have been asking Washington for more clarity. But are “crypto cops” the answer? “Regulation by enforcement is not regulation at all — it’s compliance by extortion,” Fasanello said.

A MESSAGE FROM THE CHAMBER OF DIGITAL COMMERCE

The DC Blockchain Summit is a one-day, premiere gathering of the most influential people who are focused on public policy action for digital asset and blockchain innovations. It will feature discussions with policymakers, innovators and technologists, including in-depth conversations with policymakers and regulators on the issues impacting the growing blockchain and cryptocurrency landscape. Special government rates available. Join us on May 24th!

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On the money

On Protocol: TurboTax will pay customers a total of $141 million to settle allegations that it scammed them out of free tax filing. An investigation found that Intuit, TurboTax’s parent company, engaged in deceptive practices to trick customers into paying a fee to file their tax returns.

Also on Protocol: Binance got regulatory approval from France to operate. The crypto exchange giant successfully registered as a digital asset service provider in the country, its first major European regulatory win.

Fiserv partnered with Affirm to offer streamlined “buy now, pay later” options for businesses. While Fiserv has partnerships with other players like Zip, Affirm will be the first pay-later option fully integrated into its Carat operating system, which will allow businesses to enable pay-later more efficiently.

You can now lend out your stocks for extra cash on Robinhood. The move comes as Robinhood looks for other ways to boost revenue after it reported a less-than-optimistic outlook and a drop in revenue from crypto trading.

Yuga Labs refunded gas fees to those who saw failed transactions in the Otherdeed NFT minting craze. Everyone who failed to mint an Otherdeed NFT will have ether sent back to their wallet addresses used for the transactions. Meanwhile, Yuga Labs warned users not to click on any links due to phishing attacks: Scammers with fake Otherdeed websites have already stolen millions of dollars from unsuspecting buyers.

Visa and Mastercard defended their network fees in a U.S. Senate hearing. While executives said the fees were reasonable due to the resources allocated for fraud protection, rewards and convenience, consumer advocates and merchants sharply disagreed.

California goes crypto

California, home to crypto powerhouses like Coinbase and Ripple, is taking Web3 more seriously. Gov. Gavin Newsom on Wednesday signed an executive order to “create a transparent regulatory and business environment for Web3 companies.”

The order signals California’s intention to become more deeply involved in the debates over how to regulate the fast-growing crypto industry amid worries about its impact on the financial system.

“Too often government lags behind technological advancements, so we’re getting ahead of the curve on this, laying the foundation to allow for consumers and business to thrive,” Newsom said in a statement.

Read the full story.

— Benjamin Pimentel

Moves and hires

SEC Commissioner Hester Peirce is hiring a lawyer. The Attorney-Adviser-Counsel position will advise and assist Peirce in matters relating to corporate finance, accounting and crypto. (A tip for applicants: The commissioner’s last name is pronounced “purse.”)

Coinbase named Durgesh Kaushik as senior director for Market Expansion. Kaushik was most recently the head of Snap India, and will work on Coinbase’s India launch, along with other global regions. Coinbase seems like it could use the help.

Kafene appointed Roland Jeon as chief financial officer. Jeon previously held positions at asset management firms like The Blackstone Group and Atalaya Capital Management, and joined the startup to help drive its financial growth.

Crypto.com tapped Roeland Van der Stappen as VP of Policy and Engagement for the EMEA region. Van der Stappen was most recently head of Regulatory Affairs for Europe at Visa, as well as VP of Government Policy and Public Relations at Barclays.

GoCardless appointed Paul Stoddart as president. Stoddart was most recently president of new payment platforms at Mastercard and CEO of its Vocalink subsidiary. He’s joining the payment solutions company to accelerate its go-to-market growth strategy.

A MESSAGE FROM THE CHAMBER OF DIGITAL COMMERCE

The DC Blockchain Summit is a one-day, premiere gathering of the most influential people who are focused on public policy action for digital asset and blockchain innovations. It will feature discussions with policymakers, innovators and technologists, including in-depth conversations with policymakers and regulators on the issues impacting the growing blockchain and cryptocurrency landscape. Special government rates available. Join us on May 24th!

Learn more