Last week Congress received a bill that would grant the Commodity Futures Trading Commission, not the Securities and Exchange Commission, jurisdiction over the growing digital assets market. The goal is to, as CNBC put it, tame the “’Wild West’ crypto market.” My crystal ball is not clear enough for me to predict how this will turn out. (Nor is anyone else’s, frankly.) However, from where I sit, industry participants are well served to pay attention to how the regulators are currently treating this asset class.
Simply stated, the digital asset space is anything but the “Wild West”. Consider the following actions in the past few weeks:
- FINRA brought an action against a registered representative arising out a number of investments in cryptocurrency. Cryptocurrency in and of itself was not the problem. The fact that he made or facilitated these investments through hedge funds in undisclosed private securities transactions was.
- The Department of Justice charged a former product manager of an online marketplace for non-fungible tokens with wire fraud and money laundering in connection with an alleged insider trading scheme.
- The SEC charged a number of entities and individuals for their alleged misrepresentations to investors about their “automated digital asset trading bot” and their misuse of investors’ funds.
None of these actions involved novel, untested theories of law. Rather, the authorities applied their current rule sets to address apparent misconduct concerning digital assets. This is a good reminder for broker-dealers and registered investment advisers as they consider engaging in digital assets. Existing statutes and rules still apply.
Thank you for reading this article. Please know that I wrote it for informational purposes only (some may consider it ADVERTISING MATERIAL) and did not intend for it to be legal advice or to form an attorney-client relationship with you – especially in jurisdictions where I am not licensed to practice law. I encourage you to seek your own counsel to help you with your specific situation. To that end, I invite you to contact me if you would like to discuss my services.
Ryan Smith enables broker-dealers, registered investment advisers and their associates to spend more time growing their business by helping them with the legal and compliance needs.
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