Mar 1, 2023

Former U.S. Securities and Exchange Commission Enforcement Branch Chief and Bragança Law Attorney Lisa Bragança discusses the current state of crypto regulation in the U.S. on the heels of the latest enforcement actions from the SEC. "Regulators move slowly and deliberately, and the [crypto] industry does not," Bragança said.

Video transcript

The state of crypto is presented by Ron connecting the world to the power of Cryptocurrency. Joining us for more commentary on regulatory developments is former SCC enforcement branch chief and Braz Law attorney Lisa Braz Lisa, it's always great to have you on the show. Um So the lot of dig in here, I just want to start with like there's been a lot of talk in crypto Twitter about the sec basically being on like a rampage, right to decide just going after crypto companies. And I'm just curious, like there's been so much sec stuff like it's hard to even keep track of at this point in your view, what is like the most sort of like controversial or problematic sec action over the past, you know, few weeks cause just like there's just so many things, but like, what do you think is, is the most problematic because some of them are more controversial than others? Yeah, it, it's hard to pick one. There, there have been quite a few. Um II I think the fact that the sec is so skeptical of crypto that um things that they, that would be acceptable conduct that would be acceptable in traditional finance markets is, uh, is considered by the sec completely suspect. So that's a real, I think it's, all of these cases are indicating, um, that, you know, it's kind of framing or what your perspective is when you're looking at the industry as a whole. If, if you look at it as a, a suspect group of people from the get go, then you're gonna find fraud, you're gonna find violations. Whereas you know what came to my mind just, you know, in even in just reviewing uh the Nisha Singh material is uh what about what happened in 2008 when the entire uh we had the great recession and there was massive wrongdoing in traditional finance, we didn't have any charges there. So that just struck me. So just to be clear, like what you're saying is that, you know, because it seems like what the SEC is being criticized for is largely its approach, right? It's a sort of like regulation by enforcement whack a mole. So what, what, what should the sec be doing is the idea that basically they should have just had or, or not just the SEC, but the US in general should have had like a clearer guidelines or rules for the road before all this happened as opposed to kind of like going after people, you know, after the fact, I I agree that this is regulation by enforcement, the S ECs approach has been that the, how we test applies that there, there are clear guidelines going back to the 19 forties that, you know, they say all sort of say all crypto is, um, uh, security. With the exception of a couple, sometimes they say all the crypto they've seen as a security but there's still confusion in the marketplace. So what we have is, um, you know, they keep bringing these, these cases and some of these cases are unopposed. So that sort of sets forth what the SEC thinks, but it certainly doesn't get us a, a view of what the courts think the law is. So that's, that's one issue. Um, and we've heard from industry that folks try to come in and talk with the SEC and they, they're not really getting, uh, the kind of guidance that they're looking for. And that makes sense when I was at the SEC, we didn't give advice. Um, you know, we've seen it in AC FTC case where, um, somebody went in, got a no action letter and then got slammed. Um, you know, that no action letter got pulled back. So we really do need a, a set of guidelines here for crypto. The fact is we have in the securities, I mean, if you look at securities laws there and regulations, there are lots that deal with specific types of securities. Um, there are regulations that deal with bonds, there are regulations that deal with options. There are regulations that deal with, uh, you know, stocks and they're different. The SEC recognizes they're different. What hasn't happened is there hasn't been a recognition that we need special regulations for crypto. Yeah, I can imagine that's frustrating considering, you know, crypto firms have been saying we're not getting much guidance but SCC chair Gary Gensler has been saying, oh, but you don't pretend that you're not getting guidance. It's been there for 100 years and you can just, you know, sign up onto our website and, and register online, et cetera, et cetera, right? Where do you put the crypto? I mean, one of the biggest issues of custody, you can't, you can't say that um we've resolved how to be a custodian for crypto assets, huge issue. We could definitely use regulations on that. So, so what happens, let's say uh at some point the sec says most crypto are uh are, are, are, are, are securities. What ha first of all do you think it would happen overnight? Do you think it will be a, a gradual process because of the, the uh there might be some sort of economic or financial upheaval for a lot of customers if that were done so quickly? But what happens to the likes of let's say a coin base or a crack in or, or, or some other us based entity that, that trades in crypto uh that tries to be uh on the books and, and show everything to, to regulators if, when they're asked what happens to them. Well, as long as they can satisfy the sort of requirements that typically are imposed on an ordinary broker dealer like Merrill Lynch. Um they will be fine, but this is a problem because you can't take your uh your crypto and find a custodian that can handle it. I mean, you can't go to the ordinary bank custodians. We know that uh the SEC has spoken about that. So how do you do it? What do you do? Uh uh it's a, it's a real dilemma. What we need is guidance that says, OK, here is an asset class that people want to invest in. Here is a way that the SEC considers acceptable um for, for custody of the asset. Without that, we are gonna continue to have regulation by enforcement as people try to figure out what would be acceptable. I understand the SEC doesn't like to give guidance right up front. But, and, and here's where the SEC sort of, um, you know, the approach of regulation is kind of in conflict with just how the crypto industry operates. Crypto industry has moved fast break things. You know, it's, it's very cutting edge law and the regulatory process is slow. If we go back to the seventies, it took many, many years for index funds to finally get approved. And I think that's the frustration that we have here. It's that regulators move slowly and deliberately and the industry does not, the industry is cutting edge, fast moving, Lisa just wanna switch gears for a second. So uh earlier, we were talking about Nishat Singh, he was a former executive at FTX. He's pleading guilty uh to several charges. Uh Where, where do you see the potential outcomes out of this? And, and how do you think it'll impact uh the trial of Sam Big Madrid? Well, I, I think that, um, the there are gonna be three really strong witnesses against Sam Bank been freed and those are our three folks who have reached plea deals with the, um US attorney's office. Uh They, I would expect have been in from day one. They have been providing absolutely, you know, pivotal information about what Sam Beg be fried, um, did and how this was how FTX was set up in its relation with Alameda. Um, you know, they obviously individually, each one of the three did things that subject them individually to liability. Uh, but because of their cooperation, they re reasonably would expect that they will get a, a much reduced sentence. Um, so I think that's important, particularly in a situation where the records that, you know, we had emails and or not even emails, I'm sorry, uh communication, um, set up at FTX and Alameda um that auto auto deleted. So there's a lot that's been lost. And so these people are incredibly important. Um, you can see the importance of what they've provided. The CFTC complaint uh describes how Nisad Singh gradually came to learn things. The only way we would, that, that, that kind of language would come in is based on Nishat Singh talking to the, the CFTC, the SEC and uh and Doj, so there clearly have been proper sessions, there clearly has been um a lot of communication so that the government can get their arms around what's going on. Does, does that kind of explain why Nisha sings a guilty plea comes later than Caroline Ellison's or Gary Wong's, you know, II, I agree with, um, with what Nick said, I think that it's very likely that Nisad Singh has been talking to the government for about the same amount of time that, that, um, Ellison and Wang have been and it's just that it's taken a little bit longer. It could be that it's a little more complicated, um, you know, his situation, uh, I, I don't know that they've fully worked out. Um, I, I've seen different numbers in terms of what the loans were that he took out. Forbes reported some hundreds of millions of dollars of loans that, that he individually got. Whereas the, um, the charges that were filed show about 6 million plus another 10 million. So, I'm, I'm not sure, uh, that they might still have been working out the facts. Mhm. Well, we'll certainly continue to monitor developments in that story. Lisa, thank you so much for weighing in that was former SCC enforcement branch chief and Braganza law attorney Lisa Braganza.

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