United States regulators, such as the Securities and Exchange Commission (SEC), have ongoing civil cases against major cryptocurrency firms, including Binance, Coinbase, and Ripple. However, not all companies in the crypto industry have been subject to the same treatment.
Gary Gensler, who has been serving as the SEC chair since 2021, has received criticism from lawmakers and industry leaders for his “regulation by enforcement” approach to crypto companies and offerings. Some of the cases against these companies have ended up in federal courtrooms to determine whether certain tokens qualify as securities in the United States, and the judges’ decisions have not always been in favor of the regulator.
For example, the SEC filed a lawsuit against Ripple in December 2020, alleging that its token XRP was an unregistered security. However, in July, the court ruled that XRP was largely not a security, granting Ripple a partial summary judgment. Similarly, Coinbase, anticipating legal action from the SEC, targeted the regulator in response to its lawsuit, claiming that the exchange had tried to register unsuccessfully and without proper feedback.
Prometheum, a crypto firm that gained media attention when co-CEO Aaron Kaplan testified before the House Financial Services Committee on digital asset regulation, received approval from the Financial Industry Regulatory Authority (FINRA) as a special purpose broker-dealer (SPBD) for digital asset securities in May. Some of its subsidiaries have successfully registered with the SEC. Kaplan stated that Prometheum was built to comply with federal securities laws and create a digital asset security trading platform that adheres to investor protection rules.
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This approach by Prometheum suggests that certain crypto companies, like Coinbase, Binance, and Ripple, launched their services in the United States with the intention of challenging existing regulations. These major players have even lobbied for legislation that is favorable to the crypto industry. Coinbase CEO Brian Armstrong, for example, has been active in Washington DC and has encouraged users to support political candidates who promote pro-crypto policies.
Kaplan believes that some crypto companies have been working to rewrite or amend existing laws in their favor, potentially to the detriment of retail investors. Many industry leaders and lawmakers have echoed these concerns, stating that the current regulatory frameworks are ill-equipped to handle digital assets. The question of which digital assets qualify as securities remains a challenge for crypto firms in the US.
Prometheum’s ability to obtain a SPBD license has raised eyebrows and led to calls for an investigation by advocacy groups and crypto-minded members of Congress. Concerns have been raised about potential favoritism and the use of personal connections to gain an unfair advantage in the market. The Blockchain Association, for instance, has called for an investigation, alleging that Chair Gensler is using Prometheum and the licensure process to thwart congressional efforts toward legislation.
It remains uncertain whether Prometheum’s approach will work for existing players in the crypto space to avoid enforcement actions or for up-and-coming projects aware of the regulatory challenges ahead. David Hirsch, head of the SEC’s crypto enforcement division, has stated that the commission will continue to bring actions against firms it believes are violating US securities laws, including decentralized finance projects.
On September 27, Gensler will testify before the US House Financial Services Committee on SEC oversight. Lawmakers plan to question him on matters such as policies on digital asset custodial activities and the expansion of the commission’s authority over crypto firms.
In conclusion, the regulatory landscape for cryptocurrency firms in the United States remains uncertain and complex. While companies like Ripple have seen some success in challenging the SEC’s allegations, others like Coinbase are still embroiled in legal battles. Prometheum’s ability to obtain a SPBD license has raised concerns and calls for an investigation. As lawmakers and industry leaders continue to grapple with defining and regulating digital assets, the crypto industry faces an uphill battle in complying with existing laws and advocating for favorable legislation.
