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Prominent figures in the cryptocurrency law community have accused the US Securities and Exchange Commission (SEC) of overstepping its bounds in its latest crackdown on crypto companies. The criticism comes after cryptocurrency and stock brokerage Robinhood announced that it had received a Wells Notice from the SEC regarding cryptocurrencies.
Variant Fund's Chief Legal Officer, Jake Chervinsky, expressed on social media his surprise at the number of Wells Notices the SEC has sent to crypto companies in recent months. “It is hard to imagine that they would (or could) make so many enforcement decisions at once,” he wrote, adding: “They appear to be abusing the Wells process now as a scare tactic.”
Chervinsky went on to accuse the SEC of disproportionately focusing its efforts on the crypto industry rather than the equity and debt markets.
He warned that if the SEC took as many enforcement actions as it did sending Wells Notices, it would be “in flagrant violation of both the law and the authority of Congress.” Otherwise, he argued, he was “blatantly abusing the Wells process to collect free information and terrorize honest U.S. companies.”
Rodrigo Silva-Herzog, special counsel at Cooley LLP and former special counsel at Paradigm, echoed Chervinsky's sentiments. He questioned whether SEC Chairman Gary Gensler had overstepped his bounds with his ongoing “anti-crypto bombardment campaign.”
The controversy comes as Robinhood announced Monday that it plans to file an enforcement action against the company's cryptocurrency for alleged securities violations, according to an SEC filing on Form 8-K.
“This is the latest in a series of new Wells Notices that appear to cover a broad swath of different types of actions, but all relate to the crypto space,” Gary DeWaal, senior attorney at Katten Muchin Rosenman LLP, said in an interview.
“I think this is a testament to the SEC's continued interest in the crypto space and their desire to exercise jurisdiction in areas where they frankly don't have full jurisdiction yet.
“There seems to be some assertion at the moment that Ethereum is a security that could underpin all of these actions.”
But DeWaal added that without seeing the Wells Notices, it's unclear what each one is about.
*This is not investment advice.