Rollback of Crypto Enforcement, Recent SEC Rules Expected Under Trump

SEC Crypto Enforcement Slated for Major Rollback Under Trump

“Some crypto cases have been legit fraud cases and I hope those continue and I hope we get more of them,” said J.W. Verret, professor at George Mason University’s Antonin Scalia Law School in Arlington, Virginia. “A lot of crypto cases have been registration only, foot fault cases when registration is impossible.”

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The SEC’s enforcement cases against crypto companies have centered on whether their products fit within the decades-old definition of a security, as laid out in the US Supreme Court’s opinion SEC v. W.J. Howey Co. That hasn’t been a good approach, according to William McLucas, a former SEC enforcement director, now a partner at WilmerHale. McLucas spoke during a securities enforcement conference in Washington on Wednesday.

“That can’t be the solution because whether you like crypto or you don’t like crypto it’s not going away,” McLucas said. “The enforcement cases that have been brought are what they are, but they keep bringing them, and we keep seeing crypto products,” he said.

SEC Poised for Slow Regulatory Unraveling Under Trump: Explained

Trump’s Securities and Exchange Commission is expected to start undoing the climate rules as soon as January, less than a year after their March release under Democratic Chair Gary Gensler. The regulations have yet to take effect; the agency paused them in April after companies, Republican state attorneys general, and others sued.

A Republican-led SEC also will have the ability to begin work to scrap registration and short-sale rules for hedge funds, as well as other regulations. The National Association of Private Fund Managers and other industry trade groups sued the SEC over the hedge fund rules after the agency issued them under Gensler. The cases are pending.

The process of unraveling SEC regulations, however, can take years. And court battles could be slow to wind down, especially in situations where outside parties like Democratic state attorneys general have intervened to defend SEC rules.

Tesla verdict involving tweet upheld in appeals court

A U.S. appeals court on Wednesday upheld a jury’s verdict clearing Tesla CEO Elon Musk and his company of liability over allegations they misled investors when the billionaire posted on social media in 2018 that he had “funding secured” to take the electric car company private.

The San Francisco-based 9th U.S. Circuit Court of Appeals rejected arguments by lawyers for Tesla investors that the instructions jurors received on the law from the judge presiding over the case before they delivered their verdict in February 2023 were flawed, warranting a new trial.

What’s Next for Crypto Litigators With a Trump Administration

“The election shakes up the legal market but overall, there won’t be a decrease in work for litigators because as you have more players and money coming into the industry, there are more things that can go wrong, more companies that want to launch and more happy purchasers as well as more unhappy purchasers,” Goody Guillén said. “This industry is expected to thrive now. The election just changes as to what legal services are needed.”

Goody Guillén said that the private litigation will be brought by people who own digital assets, are alleged to have been wronged and are no longer relying on the SEC’s assertions, for instance, that token sales are securities to recover their losses. However, Goody Guillén said, some of the SEC’s recent brand of regulatory action is not going away.

“Allegations of fraud and enforcement by the government will be likely coming from other regulators rather than the SEC who do not have the requirement that the underlying asset be a security,” Goody Guillén said. “Whether it is the Department of Justice or Commodity Futures Trading Commission, litigators are expected to see a change there.”

Whistleblowers: SEC Bars Claimant Who Made “Frivolous Claims”

Although eye-popping whistleblower awards might make you think otherwise, the SEC is not throwing bags of cash at every [Redacted] who reaches out to them. An order issued by the Commission earlier this week serves as a warning to aspiring whistleblowers that they must exercise at least some discretion with their submissions.

The order not only denied a whistleblower’s award applications – it also permanently barred them from ever participating in the whistleblower program again….

Crypto

I have two questions here. One is: What will crypto regulation look like under Donald Trump? There are two main possibilities:

1. Someone — Congress, the SEC, the Commodity Futures Trading Commission, some new crypto regulator, Donald Trump by executive order, etc. — writes new disclosure and investor protection rules tailored to crypto, with public notice and comment and some input from the crypto industry. And the result is that there is a path to registration for crypto token issuers, exchanges and brokers, and that path does protect investors and give them useful disclosure, and being a US-registered project/exchange/broker is helpful for raising capital. Basically the US government does to crypto what it did to the stock market in the 1930s: Impose requirements that are somewhat costly and restrictive, but that increase investor confidence in the market and so allow it to grow and become more institutional.

2. Nobody will do that, but the SEC will stop trying to enforce securities laws against crypto, and everyone will be able to do whatever they want?….