Regulation
Why Even the Supreme Court Can’t Stop the SEC’s Crypto Crackdown – DL News
- The U.S. Supreme Court has moved to curtail the powers of regulators.
- The ruling will not immediately disarm the specter of cryptocurrencies, the SEC.
The Supreme Court sidelined regulators’ powers to interpret the law, which cryptocurrency experts hailed as a victory against the Securities and Exchange Commission.
However, legal experts say, we shouldn’t expect to see the market regulator tamed any time soon.
“There’s an expectation, you might call it Pollyanna-ish, that this is going to tame regulation and fundamentally transform the federal government,” said Alan Konevsky, vice president and chief legal officer of blockchain firm tZERO. DL News.
But “it won’t tame regulation, it won’t make all regulatory agencies redundant,” he added.
The SEC, led by Chairman Gary Gensler, has launched a series of enforcement actions against cryptocurrency companies, suing companies such as Binance, Coinbase, and Kraken.
Cryptocurrency experts have complained that the agency regulates through enforcement, creating a hostile environment for the industry in the United States.
Many are now looking ahead to the November election and a possible second term for Donald Trump, who the industry believes will end the SEC’s crackdown on cryptocurrencies.
Cautious optimism
Some had expected the recent Supreme Court ruling to neuter the watchdog.
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In a case involving herring fishing fleets, the U.S. Supreme Court has struck down a long-standing legal rule, the so-called Chevron Doctrine, that for 40 years had seen judges defer to the advice of regulators.
The ruling was overshadowed by another Supreme Court decision that could shield Trump from criminal prosecution on certain charges.
However, the Chevron ruling is much more important for the functioning of the federal government, experts say.
Cryptocurrency advocates say the ruling provides the industry with a precedent against the SEC.
Konevsky, however, called for cautious optimism.
Chevron’s bankruptcy will certainly create the perception that it is now easier to challenge regulatory agencies, he said.
This will shift the balance of power in favor of the judiciary and away from regulators.
“Will people use this as a hammer almost immediately? Yes! They would be ill-advised not to.”
— Alan Konevsky, tZERO
It might even encourage Congress to write more detailed laws to prevent vague statutes from hindering lawsuits.
But it’s unlikely that there will be any immediate victories for the industry, either in legal battles with the SEC or in getting tailored legislation more quickly, Konevsky said.
A hammer
Gensler’s crackdown on cryptocurrencies is supported by his interpretation of U.S. law, which holds that most cryptocurrencies are securities and therefore fall under his purview.
The industry, on the other hand, argues that cryptocurrencies are new instruments and Congress has not given the SEC a mandate to regulate them.
Konevsky said he expects litigants in those trades to soon cite the Supreme Court’s Chevron ruling in their defenses.
“Will people use this as a hammer almost immediately?” he said. “Yes! They would be ill-advised not to.”
Only time will tell, he added, whether this tactic will be successful as cases proceed through lower and appellate courts.
“Historically, the SEC has relied less on what the industry might perceive as expansive interpretations or exploiting statutory ambiguities,” Konevsky said.
“So to what extent this will be successful in SEC litigation is an open question… It takes years for a cohesive national policy to emerge from litigation, so we’ll have to wait.”
Legislation from the court
Still, the Chevron ruling’s overturning is good news for judicial review and the separation of powers that underpin American democracy, Konevsky said.
After all, regulators aren’t supposed to write laws.
Others argue that judges shouldn’t do it either.
These critics argue that overturning the Chevron ruling would allow for so-called “court rulemaking,” and the companies could turn the tables on the companies by paying for biased judges.
“There’s a really important role for people who work in agencies, who have expertise” in their fields, said Candace Kelly, chief legal officer of the Stellar Development Foundation, a blockchain nonprofit. DL News.
Kelly is a former federal prosecutor and senior policy adviser to the Department of Justice who also held several legal positions at Uber.
“Even though it may not be codified in the respect of Chevron, I hope there will continue to be some respect for those who have this expertise,” Kelly said.
Kelly shared the concerns of other critics of the Supreme Court ruling that, without Chevron deference, different courts would reach different interpretations of the same laws.
“The Supreme Court can only hear a limited number of cases. There is a risk that a high level of uncertainty will be amplified,” Kelly said.
Contact the author at joanna@dlnews.com.