The Crypto Wrangler

US Securities and ExchangeCommission ChairmanGary Gensler calls for greater regulation of cryptocurrencies to rid the sector of fraud, scams and abuse.

The new chairman of the US Securities and Exchange Commission, Gary Gensler, has a lot on his plate. His comments regarding security-based swaps, short sellers, the gamification of stock trading, increased corporate disclosure, the explosive rise of special purpose acquisition companies and Chinese shell companies have made headlines over the past several months. None of his remarks, however, have been followed as closely as those related to cryptocurrencies.

“Right now, we just don’t have enough investor protection in crypto,” Gensler said in a prepared speech to the Aspen Security Forum in early August. “Frankly, at this time, it’s more like the Wild West.” This asset class, he added, is rife with fraud, scams and abuse: “If we don’t address these issues, I worry a lot of people will be hurt.”

Gensler’s hands-on approach when it comes to investor protection comes as no surprise. A former banker at Goldman Sachs, professor of global economics and management at the Massachusetts Institute of Technology and former chairman of the Commodity Futures Trading Commission—where he spearheaded the implementation of the Dodd-Frank Act and the Consumer Protection Act in 2010—his philosophy is well known: Regulation makes markets more transparent, efficient and competitive.

When it comes to virtual currencies, however, many fear that too much oversight will stifle the sector.

“Gensler has a strong background in digital assets and clearly understands the space,” says University of Arkansas School of Law professor Carol Goforth. But she says that while adequate regulation is essential, the ongoing focus on registration of cryptocurrencies as a security is less than ideal.

“Hopefully, US legislators—who have clearly been made aware of crypto assets as a result of the unfortunate wording in our infrastructure bill regarding reporting obligations of crypto ‘brokers’—come to the rescue of the industry,” she adds.

The push to force registration and penalize failure to register when there is no proof anyone was misled or defrauded, Goforth argues, is regrettable. Rather, the focus should be on illegal schemes and money laundering, she says, “so that we do not, as a nation, wind up pushing innovation overseas.”