SEC Enforcement Chief: We Can't Ignore Crypto Law-Breaking

Gurbir Grewal, director of enforcement at the U.S. Securities and Exchange Commission, said his agency can’t look the other way as the cryptocurrency industry violates securities laws.

“It often seems that critics are upset because we're not giving crypto a pass,” Grewal said Friday at a Practising Law Institute conference in Washington, D.C. His brief remarks focused largely on crypto – it was the only industry specifically addressed – revealing how much the agency is currently thinking about digital assets.

The SEC needs to “impartially enforce the laws on the books,” and ignoring them "would be a betrayal of trust, and that is not an option for us," he said.

He also noted that crypto has had an outsized, harmful impact on low-income and nonwhite consumers.

His comments – and more detailed remarks from the division’s new crypto chief – come on the heels of a series of remarks and interviews done by SEC Chair Gary Gensler this week. Gensler also issued a strong warning to the digital assets industry that his agency would not sit idle on enforcing U.S. laws against unregistered exchanges and tokens that fail to register as securities.

David Hirsch, the incoming head of the SEC's crypto enforcement effort, also said at the PLI conference that "registration is key in this area, particularly for issuers." The agency wants to see a culture of compliance in crypto, complete with accountants and specialized attorneys that are there to keep the "wellbeing of their investors forefront in their minds."

He said crypto platforms need to register and get "robust systems in place to prevent market manipulation, wash trading and other types of misconduct."

Hirsch said decentralized finance (DeFi) is a particular area of worry.

"If you have a purely pseudonymous and absolutely permissionless environment, it is hard to also be regulatorily compliant," he said. "To the extent you have a very low-accountability financial system, I don't know that there's great historical precedent for that being something that is either good for retail investors or has been successful over a long time horizon."

Hirsch cautioned that DeFi operations need some ability to shield themselves from known fraudsters, and being entirely permissionless makes that difficult.

Commissioner Mark Uyeda also weighed in on what he argued was the agency’s tendency to lean on enforcement instead of dealing with crypto through new rules.

"To the extent that crypto assets raise unique issues not otherwise addressed in the current rulebook, the commission should consider proposing rules," said Uyeda, a recent addition to the commission. Uyeda, a former SEC employee once assigned to work with the Senate Banking Committee's Republican staff, hasn’t previously been heard on cryptocurrency issues.