Gurbir Grewal, the director of the Division of Enforcement at the United States Securities and Exchange Commission (SEC), has pushed back against criticism that the regulator is making up rules on crypto as it goes.

In prepared remarks for an SEC Speaks event on April 3, Grewal claimed that companies in the crypto industry had made “many creative attempts” to avoid the commission’s jurisdiction by continuing to operate in the United States. He also addressed concerns that the SEC was “recklessly exceeding” its authority or “regulating by enforcement” in lawsuits brought against crypto firms.

Gurbir Grewal at SEC Speaks on April 3. Source: Practicing Law Institute

Grewal pointed to Sam Bankman-Fried as an example of the need for enforcement cases. On March 28, the former FTX CEO was sentenced to 25 years in federal prison for defrauding investors of the crypto exchange, including “people who were forced to sell their home, their car, or take on a second job to make up for their losses.”

“It’s my hope that, after the latest in a long and growing string of courts affirming our authority to police the crypto markets, we can move past them and address the very real issues present in this industry that lead to elevated investor risk: fraud, lack of transparency, commingling of assets, conflicts of interest, and lack of oversight, to mention just a few,” said the enforcement director.

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Grewal reiterated that the SEC’s standard for determining what a security is under the Howey test had been “clearly and consistently applied.” He did not specifically address reports that the SEC had been exploring whether to classify Ether (ETH) as a security rather than a commodity under the U.S. Commodity Future Trading Commission’s purview.

“These are not secret analyses; they are public documents for the whole world to see,” said Grewal. “Even parties that argue in court that their conduct does not implicate the federal securities laws have themselves used the Howey framework internally for years to evaluate crypto offerings.”

In March, a Utah judge imposed sanctions on the SEC for acting in “bad faith” in a lawsuit it brought against the firm Debt Box. Many industry participants have pointed to the commission’s seemingly inconsistent approach to enforcement on crypto firms and exchange-traded funds, hinting it could lead to an exodus from the United States.

The enforcement director’s comments followed those from SEC Commissioner Hester Peirce, who on April 2 criticized the regulator’s accounting guidelines for institutions looking to custody crypto assets. She and other staff and commissioners will speak at the SEC Speaks event ending on April 3.

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