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How are crypto firms responding to US regulators’ enforcement actions?

United States regulators including the Securities and Exchange Commission (SEC) have ongoing civil cases against major cryptocurrency firms including Binance, Coinbase, and Ripple, but not every company has been subject to the identical treatment.

Gary Gensler, serving as SEC chair since 2021, has been widely criticized by many lawmakers and industry leaders for a “regulation by enforcement” approach to crypto firms and offerings. Some of the cases have ended up in federal courtrooms to find out what may qualify as a security within the United States, and never all judges’ decisions have necessarily been favorable to the regulator.

The commission filed a lawsuit against Ripple in December 2020 over XRP as an allegedly unregistered offering, but received a partial summary judgment in July that the token was largely not a security. Coinbase, which looked as if it would expect legal motion ahead of the SEC’s lawsuit filed in June, targeted the regulator in response to its case, claiming the exchange tried to “are available and register” without success or proper feedback.

Prometheum, a crypto firm which gained lots of media attention in June following co-CEO Aaron Kaplan testifying before the House Financial Services Committee on digital asset regulation, received approval from the Financial Industry Regulatory Authority as a special purpose broker-dealer (SPBD) for digital asset securities in May. Some of the firm’s subsidiaries, which also deal in digital assets, have successfully registered with the SEC.

“Prometheum was purpose-built to comply with federal securities laws and create the primary digital asset security trading platform subject to those laws including investor protection rules,” Kaplan told Cointelegraph. 

Kaplan’s approach would appear to suggest that certain firms like Coinbase, Binance, and Ripple launched services within the U.S. with the intention of trying to alter existing regulations. Major players have sometimes lobbied for laws favorable to crypto firms: Coinbase CEO Brian Armstrong has been an everyday presence in Washington DC and encouraged users to back political candidates in support of pro-crypto policies.

According to the Prometheum co-CEO, certain crypto firms “have been working to rewrite or amend existing laws of their favor and to the detriment of retail investors”, speculating that the present frameworks are incapable of coping with digital assets. Many industry leaders and lawmakers have echoed similar concerns, claiming crypto firms within the U.S. have an uphill battle in recognizing what digital assets qualify as securities.

Kaplan hinted the undeniable fact that Prometheum was in a position to obtain a SPBD license was evidence that regulatory compliance was no less than possible. However, the approval has led to calls to research the firm by advocacy groups including the Blockchain Association and crypto-minded members of Congress.

“We are concerned that the [SEC] granted Prometheum a ‘sweetheart’ deal in exchange for support of the Commission’s policy goals, or that Prometheum is leveraging personal connections with the Commission to realize an unfair advantage available in the market,” said the Blockchain Association in July. “Most significantly, we’re concerned that Chair Gensler is using Prometheum and the SPBD licensure process as a way to thwart congressional efforts toward laws by continuing to spread the false narrative that the law is already clear with regard to digital asset securities.”

Kaplan added:

“From the moment Prometheum received its SPBD license, there was a seemingly concerted effort by various industry associations and lawmakers to discredit the greater than 6 years of labor we have now put in to construct our company.”

Related: Binance and CEO Changpeng Zhao ask court to dismiss SEC suit

It’s unclear if Prometheum’s approach will work for existing players within the space in an effort to sidestep enforcement actions, or for up-and-coming projects aware of the regulatory challenges within the United States. David Hirsch, head of the SEC’s crypto enforcement division, reportedly said at a Sept. 19 conference that though the commission was currently embroiled in several civil lawsuits, it will proceed to bring actions against firms it saw as violating U.S. securities laws — including decentralized finance projects.

Gensler will likely be testifying before the U.S. House Financial Services Committee on Sept. 27 in a hearing on SEC oversight. According to a Sept. 22 memo, lawmakers will query the SEC chair on matters including policies on digital asset custodial activities and expansion of the commission’s authority over crypto firms.

Magazine: Crypto regulation: Does SEC Chair Gary Gensler have the ultimate say?

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