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July 12, 2021

Senator Warren Sets Her Sights on New Foes – the SEC and the Cryptocurrency Industry

By Matthew G. Lindenbaum, Robert L. Lindholm, Kelly Hogan

Massachusetts Democratic Senator Elizabeth Warren, who is also the chair of the Senate Banking Committee’s Subcommittee on Economic Policy, sent a letter on July 8, 2021 addressed to the Securities and Exchange Commission’s (“SEC”) Chairman Gary Gensler seeking clarification on the SEC’s authority to regulate cryptocurrency exchanges.  Citing to SEC Chairman Gensler and Commodity Futures Trading Commission (“CFTC”) Commissioner Dan Berkowitz’s own words acknowledging the limited protections against fraud and market manipulation on cryptocurrency exchanges, Warren challenges the sufficiency of the current regulatory framework.  In the letter, Warren acknowledges the growth of cryptocurrency exchanges and trading activity in recent years and raises concerns regarding the limited regulation of such exchanges despite the similarities they share with traditional national securities exchanges that are federally regulated.   Warren contends that cryptocurrency exchanges are generally only subject to state-level regulations for money transfer or payment services and that such regulations are not equipped to provide adequate protections. 

At the end of the letter, Warren requests the SEC answer a number of questions before July 28 “[t]o better understand the SEC’s existing authority to protect consumers and investors who participate in cryptocurrency exchanges, and the potential need for Congress to take additional action on these matters.”  Among others, Warren asks the SEC to disclose whether it believes that cryptocurrency exchanges are currently operating in a “fair, orderly, and efficient” manner, disclose any problems that the SEC has identified concerning the use of cryptocurrency exchanges, distinguish between the characteristics of the assets traded on cryptocurrency exchanges and those traded on traditional securities exchanges, state whether such characteristics warrant additional protections for consumers and investors, explain the SEC’s authority to regulate cryptocurrency exchanges and how such authority differs from traditional securities exchanges, and provide its opinion on the need for international regulatory coordination to protect investors and consumers in the United States. 

In a press release, Warren makes clear her purpose for demanding responses to these questions – she wants to determine the bounds of the SEC’s current authority to regulate cryptocurrency exchanges so she can determine whether or not to push Congress to take action to close any regulatory gaps.  In other words, Warren is gearing up for a public fight against the cryptocurrency industry and perhaps the SEC.


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