Between the Delta and the Plain English Decree, Will We Ever See Clarity From the SEC?
November 9, 2018 by Paul de Havilland
Will we ever see clarity from the SEC? On Monday November 5th, 2018, the SEC issued a statement declaring its intention to issue plain English guidance for any would-be ICO issuer. On the 8th, only three days later, it announced it had filed charges against and reached a settlement with the founder and former operator of EtherDelta, Zachary Coburn. Given these seemingly incongruous actions, will we ever see clarity from the SEC?
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Is the SEC the Devil or the Deep Blue Sea?
The cryptocurrency industry has all-but given up on the U.S. Securities and Exchange Commission’s permission for digital currencies to be considered a fully-endorsed and normalized segment of the finance sector. Regulatory certainty has become the best the industry can hope for if it is to develop at all in the United States.
As David Forman, chief legal officer of Fidelity Investments told Congress last month in an industry-wide plea for a legislative takeover of crypto affairs given the securities regulator’s incapacity to afford it clarity:
“If the rules are unclear, unwritten, or unknown it’s not appropriate to punish people for making the wrong guess.”
The group argued that the SEC’s actions–and inaction–risked a flight of innovation offshore.
Will We Ever See Clarity From the SEC? The Promise of Clear Guidance
As reported earlier this week by Bitsonline, William Hinman told attendants at the D.C. Fintech Week Conference that the body was preparing to issue “plain English” guidelines for the industry. Per Hinman:
“We also will be putting out more guidance, the idea is a plain English instrument that people can look at and they’ll bring together sort of my Howey-meets-Gary speech, and that analysis … We’ll elaborate on that in a very plain English way, so ‘do I think I have a security offering,’ look at that guidance and you should be able to sort things out.”
It also suggested it would be opening up its doors for members of the industry to seek face-to-face advice, presumably through their newly established Strategic Hub for Innovation and Financial Technology (FinHub).
A Jab at EtherDelta Three Days Later
Three days later, the watchdog released details of a settlement with a widely used decentralized exchange’s founder. The move suggests that while conceding the body cannot punish software, it can and will go after those who create it.
The apparently contradictory moves–coming so close together–appear to amount to an inconceivable absence of tact, competence, and consideration of the needs of even those the body is established to protect–investors. Because these actions taken so close together indicate the SEC is in no position to determine how to protect investors or what to protect them from.
Muddying the waters further, the SEC’s declaration that “EtherDelta offered trading of various digital asset securities and failed to register as an exchange or operate pursuant to an exemption” abjectly failed to identify which of the tokens traded on EtherDelta were securities and which weren’t. The most likely reason for that omission is that the body has no idea which tokens it considers securities.
The body referenced its 2017 DAO report in such a way as to suggest it should be obvious to everyone what constitutes a security. Yet, of course, this is the same body that stated ether no longer is, but probably once was, a security… and for one reason or another its creators would face no regulatory action.
The Ox project released a statement that in order to comply with regulations, they are conducting “a good faith analysis of each token [and] working through the best way to do that analysis”.
Re: SEC Charges EtherDelta Founder With Operating an Unregistered Exchange pic.twitter.com/OhKyh1o1Nf
— 0x (@0xProject) November 8, 2018
In other words, the commission has placed best practice players in the industry in a position to try to comply with rules that are not clear, using educated guesswork as their primary guide. There isn’t a single investor for whom that approach comes even close to protecting.
The Devil Is in The… Subpoenas
It must be remembered that the SEC has issued a number of subpoenas, including “dozens” against ICO operators on March 1st. In fairness to both the defendant and the regulator itself, the investigations that follow remain confidential until a resolution is found. Those subpoenas haven’t gone away. And we are likely to hear about plenty more settlements and charges before the decks have finally been cleared for the token party that may then follow that long hoped-for legal clarity.
That is, of course, if the innovation in the U.S. hasn’t already left for steadier platforms in the meantime.
Have your say. Will we ever see clarity from the SEC?
Images via Pixabay