Hey everyone,
I recently had the chance to ask Marc Fagel, a former SEC regional director, a few questions about the SEC’s enforcement actions and how much they are influenced by the current political administration. Given the current climate and the changes we’ve seen under different SEC chairmen, I thought it would be insightful to dive deeper into this topic. Here’s a summary of our conversation.
My Question: Political Influence on SEC Enforcement
My Question:
“How much of the enforcement action at the SEC is tied to the current political administration?
Under Chairman Clayton, crypto wasn’t an important area of focus outside of flagrant violations like ICOs. Commissioner Peirce stated they did very little discussion towards the subject during that time.
Under Chairman Gensler, there has been a huge uptick in enforcement actions towards the broader crypto space. Some of that I’m sure is due to FTX, Celsius, and other massive fraud that happened. I’m not sure how much of that comes from the Biden administration or just the times.
Let’s say a candidate is funded by crypto, and the next administration wants to be friendlier towards the industry. Should we expect the same treatment until Congress passes laws, or does a particular President set the tone to some extent?”*
Marc Fagel’s Response:
1. Historically, it would be highly unusual for a new SEC administration to interfere with previously filed enforcement actions (i.e., Ripple), though a change in policies/priorities could impact later decisions on settlements & appeals. But for new actions, yes, a new SEC administration could change priorities.
2. Generally, enforcement is apolitical—a violation of the law is a violation of the law, and most enforcement recommendations are approved unanimously. Crypto might be different, and a new administration could take a different approach.
3. BUT less aggressive administrations have found themselves burned before. If they take a more hands-off approach on crypto, all it takes is one more FTX/Celsius, and they’re going to ratchet it up again (absent Congress or the courts changing the legal regime).
My Follow-up Question: The Root Cause of Aggressive SEC Actions
My Follow-up:
“Thank u. Quick follow-up: do you think the current aggressive activity from the SEC is due to ‘Elizabeth Warren and her anti-crypto influence’ as is pitched or the large amount of fraud from Luna, FTX, Celsius, etc. that resulted in billions of investor losses?”
Marc Fagel’s Response:
“The latter.”
Breaking Down the Insights
Here’s what we can take away from this discussion:
1. Continuity of Enforcement Actions:
• Marc points out that it’s unusual for a new SEC administration to reverse existing enforcement actions. This means that once an enforcement action is in motion, it’s likely to continue, providing a degree of stability and predictability in how these actions are handled.
2. Policy Shifts with New Administrations:
• While the enforcement of laws is generally apolitical, the focus and priorities of the SEC can shift with changes in leadership. This is particularly relevant in the rapidly evolving crypto space, where new administration could influence the type and intensity of enforcement actions.
3. Reaction to Major Frauds:
• The significant increase in enforcement actions under Chairman Gensler is largely a reaction to major frauds like FTX and Celsius. This highlights the SEC’s role in responding to significant market disruptions and protecting investors.
4. Political Influence:
• Despite some claims about political figures driving the SEC’s aggressive stance, Marc’s response indicates that the primary driver is the need to address significant fraud and protect investors. This suggests that the SEC’s actions are more about maintaining market integrity than political maneuvering.
My Takeaway
This conversation with Marc Fagel has given me a clearer understanding of the dynamics at play within the SEC. While political administrations can influence priorities, the core mission of the SEC to enforce the law and protect investors remains steadfast. For us in the crypto community, it’s essential to stay informed and be prepared for the regulatory landscape’s ebbs and flows.
As always, stay tuned for more insights and updates on the crypto space. Let’s navigate these regulatory waters together and continue to push for a more transparent and fair market.
Best,
Jungle Inc.
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