SEC Chair Gensler on "the Most Transformative Technology of our Time"

SEC Chair Gary Gensler Warns AI Risks Financial Stability

Gensler, who previously taught classes at the Massachusetts Institute of Technology, has frequently discussed the impact of AI on finance since taking the helm of the SEC in 2021. However, he said Monday that the issues have taken on a new importance with recent advances in the tools, which he called “the most transformative technology of our time.”

On a more micro level, companies need to be aware of how their use of AI may implicate securities rules, he said. Whether it is used for financial fraud, juicing corporate returns or steering investors toward specific products, the SEC will be on the lookout, Gensler said.

In particular, publicly traded companies should be wary of misleading investors through their corporate statements and disclosures about the risks and opportunities AI might bring, he said. He added that the SEC’s investigators could benefit from using more AI in their surveillance, analysis and enforcement.

Coinbase CEO Brian Armstrong Set to Meet With House Democrats

Coinbase Inc. Chief Executive Officer Brian Armstrong will meet with House Democrats behind closed doors Wednesday morning, according to Democratic aides familiar with the plans.

Armstrong will speak privately with lawmakers from the New Democrat Coalition about digital-asset legislation and related issues including tax, national security, privacy and climate. The meeting comes as Coinbase, one of the largest cryptocurrency exchanges in the world, faces a lawsuit by the Securities and Exchange Commission.

Crypto firms facing US SEC charges find hope in Ripple ruling, experts say

Crypto firms have long disputed the SEC’s jurisdiction but until Thursday no court had supported that view. Now, industry lawyers have ammunition to fight back.

“This case will cause people to rethink, and I think it already has,” said Robert Frenchman of Mukasey Frenchman LLP.

***

Crypto proponents viewed the decision as a watershed and the judge’s reasoning as a new line of defense for the likes of Coinbase, Binance, Bittrex and other exchanges targeted by the SEC on the basis they were trading securities.

“It bolsters Coinbase’s and Binance’s arguments that the digital assets that are traded on those exchanges would not be deemed securities,” said Teresa Goody Guillén of Baker & Hostetler in Washington.

SEC Cannabis Enforcement Continuing to Grow this Past Spring

During the past few months, the U.S. Securities and Exchange Commission (“SEC”) Division of Enforcement has continued to police the areas of the cannabis industry that roll over into the SEC’s jurisdiction.

In March, the SEC charged American Patriot Brands, Inc. (“APB”), a cannabis cultivation and distribution company, its CEO, other officers, and affiliated entities for their participation in a long-running scheme in which the company and its owners allegedly raised more than $30 million from more than one hundred investors across the country and siphoned off millions of investor dollars to enrich themselves. In a more recent case, in late May, the SEC obtained a temporary restraining order and froze the assets of a purported Las Vegas-based cannabis products company after alleging that the company was operating a $60 million Ponzi-style scheme. The SEC alleged that “WeedGenics”, a d/b/a of Integrated National Resources, Inc. (“INR”), and its two owners made Ponzi-like payments and enriched themselves by millions. One owner served as INR’s primary investor relations representative and the other owner served as INR’s vice president.

When Howey met Gary (Gensler): Ripple or tsunami?

The paradox in Judge Torres’s ruling is that the protections of the securities laws accrue to sophisticated investors who purchase digital assets directly from an issuer or affiliate—but not to retail investors who purchase in anonymous secondary markets.

While backward from a policy perspective, this result flows from the SEC’s need to rely on the proposition that digital assets are “investment contracts.” There is logic in concluding that a purchaser who knows they’re in privity with the issuer is entering an investment “contract,” while a secondary-market trader is not.

As this implication of Judge Torres’s decision becomes clearer, Congress and other policymakers may come to be persuaded that our 1930s-era securities and commodities laws are due for an update.