Sen. Pat Toomey, a high-ranking member of the committee that oversees the Securities and Exchange Commission (SEC), accused the regulator of not providing the oversight that could've prevented several crypto company collapses.

“Had the SEC responded to calls for clarity on how it would apply existing securities laws to novel digital assets and services, things could have been different,” the ranking Republican on the committee wrote Tuesday to SEC Chair Gary Gensler. “Companies could have adjusted product offerings accordingly, preventing investor losses today and the SEC would have been free to focus enforcement efforts on the worst actors.”

Toomey referenced firms that “often promised enormous, seemingly unsustainable interest rates to depositors, and at least one business allegedly engaged in risky practices.” In particular he mentioned Celsius Network, whose lending left billions of dollars of customer funds in limbo. Despite requests from the senator and other lawmakers – and crypto firms themselves – Toomey said the SEC has declined to offer sufficient clarity about what digital assets meet the definition of securities.

Gensler has said the definitions already provided by legal precedent make it clear that most digital tokens are securities, and the exchanges where they’re traded should register with his agency.

Toomey, who has been taking up the crypto cause repeatedly during his final months in office before retirement, asked several enforcement-related questions of the agency and requested details about its findings on managing the so-called Howey Test that defines securities. The letter calls for a response by Aug. 9.

In May, the senator made a different argument, that crypto firms should be allowed to collapse, which he said is a natural part of the financial system.

“It’ll probably take some failures in this space in order for the market to figure out what works,” he’d said at the time the algorithmic stablecoin terraUSD (UST) floundered.

Amanda Thompson, a spokeswoman for Toomey, said there's a distinction between oversight of stablecoins such as UST and that of firms like Celsius and Voyager Digital, where the SEC has some enforcement history and which clearly offered an expectation of profits – one of the tests to determine securities the SEC should regulate. She said it's "unfair to imply he’s contradicting himself."

Toomey has also previously cautioned against aggressive investor protection moves by the SEC. Last year, in defense of digital trading technologies, the lawmaker urged the agency “to proceed cautiously and avoid the temptation to pursue paternalistic regulations that restrict investor freedom under the guise of investor protection.”

UPDATE (July 27, 2022, 15:10 UTC): Adds a response from Toomey spokeswoman.