Regulation
Why the US Supreme Court Won’t End the SEC’s Cryptocurrency Crackdown – DL News
- The highest court in the United States has decided to reduce the powers of regulators.
- This decision will not immediately disarm the cryptocurrency bogeyman, the SEC.
The Supreme Court has short-circuited regulators’ powers to interpret laws, in what crypto experts hailed as a victory against the Securities and Exchange Commission.
But they shouldn’t expect to see the markets watchdog tamed anytime soon, legal experts say.
“This is expected to ease regulations and radically transform the federal government,” said Alan Konevsky, vice president and general counsel at blockchain company tZERO. DL News.
But “it’s not going to control regulation; it’s not going to eliminate all regulatory agencies,” he added.
The SEC, led by its chairman Gary Gensler, has launched a series of enforcement actions against crypto companies, including pursuing Binance, Coinbase and Kraken.
Cryptocurrency experts have complained that the agency is regulating by force, 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 expected the recent Supreme Court decision to neuter the watchdog.
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In a case involving herring fishing fleets, the highest court in the United States has overturned an established legal standard, called the Chevron doctrine, that for 40 years saw judges defer to the opinions of regulators.
The decision was overshadowed in the news by a separate Supreme Court ruling that could shield Trump from prosecution on some charges.
Yet Chevron’s decision is much more important for the functioning of the federal government, experts say.
Cryptocurrency proponents say the move gives the industry a precedent against the SEC.
Konevsky, however, called for more cautious optimism.
Chevron’s demise will certainly create a sense that it is now easier to challenge regulatory agencies, he said.
This would tip the balance of power in favour of the judiciary and away from regulators.
“Are people going to use it as a hammer right away? Yes! They would be ill-advised if they didn’t.”
— Alan Konevsky, tZERO
It might even encourage Congress to draft more detailed laws to prevent vague laws from delaying prosecutions.
But it’s unlikely to bring immediate victories for the industry, either in its legal battles with the SEC or in getting more rapid, tailored legislation, Konevsky said.
A hammer
Gensler’s crackdown on cryptocurrencies is underpinned by his interpretation of U.S. law that most crypto assets are securities and therefore fall under his jurisdiction.
The industry, for its part, considers that crypto-assets are new instruments and that Congress has not given the SEC the mandate to control them.
Konevsky said he expects to soon see plaintiffs like those exchanges citing the Supreme Court’s Chevron decision in their defenses.
“Are people going to use it as a hammer right away?” he said. “Yes! They would be ill-advised if they didn’t.”
Only time will tell whether this tactic will be effective as the cases progress through the trial and appellate courts, he added.
“Historically, the SEC has relied less on what the industry might perceive as expansive interpretations or taking advantage of statutory ambiguities,” Konevsky said.
“The extent to which this measure will be successful in SEC litigation remains an open question… It takes years for a coherent national policy to emerge from litigation, so we’ll have to wait.”
Legislation from the bench
Still, the Chevron reversal is good news for judicial review and the separation of powers that underpin American democracy, Konevsky said.
After all, regulators shouldn’t be writing the laws.
Others argue that judges should not do the same either.
These critics say that overturning the Chevron decision allows for what is known as “legislating from the bench,” and that companies can tilt the balance in their favor by appealing to biased judges.
“People who work in agencies and have expertise” in their respective fields have a very important role to play, said Candace Kelly, general counsel at the Stellar Development Foundation, a blockchain nonprofit. DL News.
Kelly is a former federal prosecutor and policy advisor at the Justice Department who also held several legal positions at Uber.
“While it may not be codified in deference to Chevron, I hope there continues to be some respect for those who have that expertise,” Kelly said.
Kelly echoed the concerns of other critics of the Supreme Court’s decision that without deference to Chevron, different courts will reach different interpretations of the same laws.
“The Supreme Court can only deal with a limited number of cases. There is a risk that the level of uncertainty will increase,” Kelly said.
Contact the author at joanna@dlnews.com.