Regulation
Kim Kardashian asks important questions at the SEC
The scholar argues that the SEC violated the leading questions doctrine by suing celebrities who endorsed cryptocurrency companies.
What do Kim Kardashian, Steven Seagal and Floyd Mayweather have in common?
All three were recently targeted by the U.S. Securities and Exchange Commission (SEC) for endorsing cryptocurrency companies without disclosing that they were paid for their support.
In the near future item, Jerry Markhamprofessor at Florida International University School of Law, argues that by taking these actions the SEC violated the important questions doctrine and overstepped its regulatory authority. He says Congress has failed to provide clear authorization for the agency to regulate cryptocurrencies, such as Bitcoin or Ethereum.
Markham Notes which, according to the major issues doctrine, articulated last year by the Supreme Court in West Virginia v. EPA, an administrative agency has no regulatory authority when it seeks to regulate a matter of “broad “economic and political” significance” without first receiving clear authority to do so from Congress. Markham he claims that cryptocurrency is an area of vast economic and political significance because it is a trillion-dollar market. He has too observe that cryptocurrency ads, like several high-profile ads during the Super Bowl, reach hundreds of millions of people.
Markham too Notes that the SEC created a specific unit that has prosecuted over 80 cryptocurrency-related enforcement actions, collecting over $2 billion in fines and settlements. Markham Warningshowever, that the recent collapse of cryptocurrency exchange FTX reveals that regulation through filing lawsuits may not be enough to prevent bad behavior.
Furthermore, since the SEC carried These actions, without what Markham sees as clear legislative guidance, represent an attempt by the SEC to use lawsuits to assert authority and create the basis of a regulatory framework. Markham he claims that the SEC has taken this approach without waiting to see whether Congress, in its ongoing efforts to regulate the cryptocurrency industry, signals that it intends the agency to have this authority.
Markham suggest That Section 17(b) of the Securities Act 1933, which the SEC accused Kardashian, Seagal, and Mayweather of violating, clearly does not authorize the SEC to regulate cryptocurrency. Markham tracks from the inclusion of this provision in the Securities Act of 1933 to the stock market crash of 1929, when journalists and publicists often accepted payments in exchange for spreading favorable news aimed at increasing the value of a company’s stock.
In response, now Section 17(b). requires disclosure of payments for any collateral that may affect the price of a security. Markham recognizes that to determine the correctness of the SEC’s actions it is necessary to answer the thorny question of whether cryptocurrencies qualify as securities.
Markham observe that the SEC recognized that some cryptocurrencies are commodities, but argued that transactions involving the sale of the cryptocurrencies themselves could qualify as securities. Federal law said a long list of what qualifies as a security, including stocks, bonds, investment contracts, and many other financial instruments, none of which bear a strong resemblance to cryptocurrencies.
Markham too explains that whether cryptocurrencies qualify as securities has a huge bearing on not only how the cryptocurrency industry is regulated, but which financial regulatory agency carries out this regulation. Markham suggest that cryptocurrencies could also be classified as commodities, in which case they would fall under the exclusive regulatory authority of the Commodities Future Trading Commission (CFTC).
Markham recognizes Whether cryptocurrencies are securities or commodities is a difficult and nuanced decision. He Noteshowever, that in the past Congress has typically been the institution responsible for resolving any potential turf war between the CFTC and the SEC.
Also, Markham he claims that the SEC’s justification for treating cryptocurrencies as securities is neither compelling nor based on applicable Supreme Court precedent.
Markham observe that the SEC, in determining securities, applies a four-part test for investment contracts first articulated by the Supreme Court in a 1946 case. He he claimshowever, that the 1946 case, which involved a dispute between orange grove owners in Florida, is too outdated and factually distinct to apply to cryptocurrency issues.
Markham too recognizes than this question [of what?] is an area of ongoing debate. Over 50 bills have been introduced in Congress that seek to grant regulatory authority over cryptocurrency. Markham Notes that some of these bills designate the CFTC, not the SEC, as the regulatory body with exclusive authority over cryptocurrency. He he claims that determining whether cryptocurrencies are securities or commodities is a question to be answered by Congress, not the SEC.
Until the SEC does state authorized by Congress’ explicit language, its enforcement actions lack authority under the big questions doctrine, Markham concludes.