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Inside Federal Securities Laws and Crypto’s Tightrope

Regulation | Jul 11, 2024

Gurbir S. Grewal Director Enforcement Division SEC - Inside Federal Securities Laws and Crypto's Tightrope

Image: Gurbir S. Grewal Director Enforcement Division, SEC

Insights from SEC's Director of Enforcement:  Federal Securities Laws in the Age of Crypto

in a recent speech titled "What's Past is Prologue: Enforcing the Federal Securities Laws in the Age of Crypto", Gurbir S. Grewal, Director of the SEC's Division of Enforcement, delivered an overview of the present legal environment for crypto assets at the Third Annual Symposium of the William & Mary Business Law Review.

See:  Challenges in Global Crypto Regulations – Lessons from Dubai

He highlighted the importance of strong enforcement, the continuous applicability of federal securities laws, and the delicate balancing act between innovation and compliance. Below are select quotes across five themes from the depths of the SEC's securities enforcement division that shine light on the implications for the cryptocurrency industry.

1. Historical Continuity of Securities Regulation

Grewal emphasizes the continued applicability of the basic principles that informed the development of US securities laws.

“The history of our securities laws makes clear that Congress always intended the definition of what is a security to be principles-based and flexible to cover the many kinds of schemes where promoters seek others’ money and promise profits in return.  Whether something is a security depends on the substance of the transaction – not its name, not its form, and not its underlying technology.”

He implies that crypto assets have to live by the same regulatory frameworks as conventional securities, even though blockchain technology is unique. This guarantees strong investor safeguards while preserving market integrity in the face of technological improvements.

2. Investor Harm and Market Integrity

Grewal laments the substantial financial impact that the volatility of the cryptocurrency market has caused to regular investors.

“The current turmoil in the crypto markets is taking a real toll on everyday Americans. According to one survey, approximately 16% of U.S. adults have invested, traded, or used crypto, and among that group approximately 46% report their investments have done worse than they expected.  In the end, investors, large and small, defrauded, and billions in customer assets misused or stolen.”

To stop further exploitation and rebuild investor confidence, there needs to be more governmental oversight of the cryptocurrency markets due to the massive losses and fraudulent activities that have occurred there.  These comments highlight how important it is to follow securities rules strictly in order to protect investors.

3. Compatibility of Innovation and Compliance

A key theme in Grewal’s speech is the compatibility of technological innovation and regulatory compliance.

“Innovation and compliance with the securities laws are not mutually exclusive.  The quarrel, therefore, is with noncompliant actors, not the technology or its promises.”

See:  SEC Enforcement Director Grewal On Crypto Regulation

Grewal argues for a moderate strategy that promotes innovation while guaranteeing investor protection by differentiating between non-compliant behaviour and the promise of blockchain technology.

4. Public Trust and Regulatory Enforcement

Grewal is talking about the critical role of public trust in financial markets, which is reinforced by strict securities laws.

“Public trust requires robust enforcement of the securities laws.  We must act with all the tools at our disposal to protect investors and enhance public trust and confidence in our markets."

This means that for the cryptocurrency industry, following regulatory guidelines is crucial for both legal compliance and preserving investor confidence and market participation. Strong enforcement measures reassure investors about the integrity of the market and function as a deterrent against unwanted behaviour.

5. Socioeconomic and Racial Disparities

Grewal brings attention to the disproportionate impact that crypto market volatility has on minority and marginalized communities.

“Crypto assets are the only major financial products that Black Americans are more likely to own than white Americans. And there is some evidence that Black and brown investors have now been disproportionately harmed during the downturn of crypto markets."

See:  Canada’s Proposed Mutual Fund Crypto Regulations 2024

He also critiques:

“Predatory inclusion tactics of crypto entities directed at Black, brown, and other marginalized communities.”

Market participants and authorities have moral obligations to make sure that financial progress does not take advantage of vulnerable populations. In order to achieve equitable financial inclusion and protect all investors from predatory activities, gaps must be addressed.


Gurbir S. Grewal presents a case for a strict yet flexible regulatory framework that would safeguard investors while upholding the integrity of the market, and encourage innovation in the crypto sector. Grewal describes a regulatory approach that takes into account the historical background, investor harm, compliance, public trust, and socioeconomic inequality.

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