In threatening to sue Coinbase Global Inc. if the exchange lets customers earn interest on their digital tokens, the SEC sent a warning to other firms already offering similar products or contemplating doing so. The move is the clearest sign yet that, under Gensler, the regulator will aggressively use its powers to thwart products it’s uncomfortable with — even before they launch.
Privately, ex-SEC officials said they were shocked by the agency’s posture, which Coinbase disclosed Tuesday in a blog post. The former officials said the SEC typically waits for firms to start selling investments before announcing possible sanctions, indicating the agency has found a forceful way to shut down cutting-edge crypto offerings it fears are putting consumers at risk. Coinbase slid 3.2% to $258.20 in New York trading on news of the SEC’s pending enforcement action.
“The SEC is being aggressive for the first time in a long time,” said James Cox, a professor at Duke University School of Law. “The SEC has been putting a lot of muscle into cryptocurrency. It’s a big, fast-growing market and a fertile area for abuses.”
SEC officials declined to comment.
Read More: SEC’s Gensler Readies More Crypto Oversight to Protect Investors
When Gensler took the reins at the SEC in April, many crypto enthusiasts cheered. That’s because the former Goldman Sachs Group Inc. partner knew finance and had taught a class on digital assets at the Massachusetts Institute of Technology — a background far different from most Washington officials, who had a limited understanding of the booming market.
But that optimism has all but faded after Gensler made clear in speeches and congressional testimony that a crackdown was looming. In July, he referred to the industry as “the wild west of our financial system” that “desperately needs rules of the road.” Gensler also said the SEC will step up efforts to hold firms accountable for offering products that may involve securities, including in decentralized financial or DeFi platforms.