What is the Purpose of the SEC?
Crypto assets have for years been a focus of many. Congress has made attempts at times to craft new regulations that would govern the assets. Those efforts failed. The SEC has stepped in, using long-standing court decisions on what constitutes a security, and at times existing regulations, to govern and regulate the assets. As the courts repeatedly recognized, those efforts were based on long standing, traditional notions of what constitutes a security under the federal securities laws. Numerous cases were brought and upheld the approach of the agency. One of those actions is SEC v. Payward, Inc. and Payward Ventures, Inc., Civil Action No. 3: 23-cv-06003 (N.D. Cal.)(“Kraken”) which alleged multiple violations of the securities law.
Yesterday the Commission stipulated to the dismissal of the Kraken case with no explanation. The initial complaint was a virtual litany of violations of the federal securities laws. According to the press release issued by the agency at the time the complaint was filed, the Kraken platform “Provided a marketplace that brings together the orders for securities of multiple buyers and sellers using established discretionary methods . . . Engages in the business of effecting securities transactions . . .Engages in the business of buying and selling securities for its own account. . . and . . .Serves as an intermediary in settling transactions in crypto asset securities by Kraken customers. . .” all without registration as required by the statutes. SEC Press Release dated Nov. 21, 2023 (issued when the agency filed the complaint dismissed above, “initial complaint”). The complaint goes on for about 90 pages detailing the wrongful conduct Defendants were alleged to have engaged in that harmed market and investors.
None of the issues cited in the initial complaint are addressed in the stipulation dismissing the Kraken action published yesterday by the agency. Rather, that stipulation states only that that “the Commission and the Defendants stipulate that the Litigation be dismissed with prejudice. . .” No other explanation is offered.
The Commission’s action yesterday makes it clear that the agency has vacated the space. This action was taken despite years of cases filed, litigated and resolved in favor of the agency based on long standing law applied to crypto assets, not novel ideas. Yet now the agency has vacated the space. Now the agency has left investors with no explanation for its actions and more importantly no protection. Now it has disregarded its obligation to protect investors without explanation. If this is the approach of the agency – leaving investors to fend for themselves – what is its purpose?