SEC’s Crypto Data Requests Under Congressional Scrutiny
Several crypto companies have voiced concerns about what they perceive as overly demanding reporting requests from the U.S. Securities and Exchange Commission (SEC). U.S. Congressman Tom Emmer highlighted these grievances on his Twitter profile, mentioning “numerous tips” that seem to substantiate the claims.
The Congressman remarked that these requests appear to be far from voluntary and voiced apprehensions about the potential negative impact on the crypto industry’s innovation capability. Emmer, in collaboration with other Congressmen – Darren Soto, Warren Davison, Jake Auchincloss, Byron Donalds, Josh Gottheimer, Ted Budd, and Ritchie Torres – addressed a letter to SEC Chair Gary Gensler on March 16, seeking further details.
The letter points out that the SEC appears to have exploited its Division of Enforcement and Division of Examination authorities to gather data from crypto enterprises. The officials suggest that this usage exceeds the regulator’s remit, noting that the SEC should only operate within “its statutorily mandated jurisdiction”.
It appears there has been a recent trend towards employing the Enforcement Division’s investigative functions to gather information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission’s standards for initiating investigations.
The lawmakers highlight what they perceive as a recent tendency to misuse the Enforcement Division’s investigative functions to obtain information from unregulated cryptocurrency and blockchain players, contrary to the Commission’s usual standards for initiating probes.
The Congressmen suggest that this could contravene the Paperwork Reduction Act (PRA) of 1980, which seeks to limit the paperwork burden imposed on individuals and private entities by federal agencies.
The SEC may request voluntary information during the preliminary phase of an investigation, but the lawmakers question the voluntary nature of such requests. They argue that this could potentially create an unnecessary burden on the companies in question. They stress:
Pursuant to the PRA, in seeking information from the American public, federal agencies must be good stewards of the public’s time, and not overwhelm them with unnecessary or duplicative requests for information.
The lawmakers have provided the Commission with a list of 13 questions to clarify the allegations of regulatory overreach. The questions predominantly focus on the volume of data requested by the SEC from “Relevant Entities” and the potential compliance cost for crypto companies.
If you’re lucky, you only have to respond once. But if you have to go back and forth (or hell, even if you just have a complex product) many will easily break $25-50K at a biglaw firm from what I know from experience and anecdotally.
The officials also seek more information from the regulator regarding any penalties imposed on companies that fail to respond, and any investigations of which these entities may be aware.
Responding to this event, lawyer Collins Belton lauded the efforts of digital asset advocates in Washington. He speculated that the SEC’s responses “will not reflect well on the Commission”. He also suggested that this bipartisan initiative from the U.S. Congressmen could have positive repercussions and highlight the extent of the SEC’s requests.
I agree with everything you’re saying in this thread except the idea that the commission’s replies will somehow expose its bad practices. The commission will just respond that they don’t have this information / track this data and will otherwise give very vague replies.