The "Song of the Summer" for Securities Enforcement: Tokenization

Tokenization

I think there are two meanings of the word “tokenization”:

1. One idea is that there are some technical benefits to wrapping various financial instruments in tokens that trade on a blockchain. […]

2. Another idea is that if you say the word “blockchain” then regulators will get confused, traditional securities laws won’t apply, and you’ll be able to sell financial assets — private-company stock, real estate, etc. — without complying with the US Securities and Exchange Commission’s registration and disclosure requirements.

My view on the matter is that No. 1 is mostly a nice distraction and No. 2 is obviously the goal, which is why we keep talking about efforts to tokenize the stocks of private companies. You don’t need to tokenize the stocks of public companies! Public stocks trade electronically on the stock exchange, and tokenizing them doesn’t solve any real problems for anyone. But if you let anyone buy the stocks of private companies, you have filled a real business niche. And if you let them do that without public disclosure, you have … well, you have evaded the securities laws, is my view, but other people have different views.

Pleasingly, Hester Peirce, an SEC commissioner and the leader of its Crypto Task Force, seems to take my view….

A Slow Start for Insider Trading Cases Under Chairman Atkins

SEC stated enforcement priority under this administration: Insider trading

Number of new SEC insider trading actions filed since Chairman Atkins was sworn in back in April: One… and this was filed last week.

There are a lot of rational explanations for this, including: (1) SEC investigations take a long time, so the current administration has barely had time to scratch the surface on new insider trading matters; and (2) older insider trading investigations have been caught in the logjam of a new administration getting settled, personnel turnover in enforcement and various divisions, etc.

But it remains an interesting data point in light of historical trends. The SEC has averaged around 35 insider trading actions per fiscal year between 2018 and 2024 (covering both Democratic and Republican administrations). If we look back to available data during Atkins term as a Commissioner (2002-2008), the number was actually closer to 50 per year. We know the insider trading actions are coming, but it’s been a slow start.

Vanguard Becomes the Accidental Strategy Whale

Vanguard, the $10 trillion asset manager known in crypto circles for blocking client access to bitcoin ETFs, has emerged as the largest institutional shareholder of Strategy (MSTR), a company whose business model is built around buying and holding bitcoin.

According to Bloomberg, Vanguard now owns more than 20 million shares of MSTR — over 8% of the company — surpassing Capital Group as the top institutional holder. The stake is worth about $9.26 billion.

“God has a sense of humor,” said Bloomberg analyst Eric Balchunas, who has also written The Bolge Effect. “Vanguard chose this life. When you have an index fund, you have to own all the stocks, for better or worse, and that includes stocks that you may not like or approve of personally.”

“Institutional dementia,” said a somewhat less diplomatic Matthew Sigel, head of digital asset research at VanEck. “Indexing into $9 billion of what you openly mock isn’t strategy,” he wrote in a post on X.