John Reed Stark, a former official at the Securities and Exchange Commission (SEC), has accused the cryptocurrency industry of using falsehoods to hide its lack of transparency and accountability. He dismissed claims that the SEC engages in “regulation by enforcement.” Stark made these comments during a hearing at the U.S. House Financial Services Committee on May 7. He argued that the crypto industry refuses to comply with established laws while expecting the legal framework to cater to its needs.
Stark believes that what is referred to as “regulation by enforcement” in the crypto industry is simply the regulator carrying out its duties. He stated, “The rest of us simply call it enforcing the law.” During the hearing, Stark questioned how financial analysts and everyday investors can accurately evaluate digital assets when they lack cash flow, yield, employees, management, balance sheets, products, services, operational history, earnings reports, and a proven track record of adoption or reliance. He emphasized the challenge of conducting a proper valuation in the face of such limited data.
The term “regulation by enforcement” is commonly used within the crypto industry to criticize the SEC’s enforcement of rules and regulations. The industry argues that instead of developing clear regulations through formal legislation or rulemaking processes, the SEC establishes regulatory precedents through enforcement actions.
The focus of the hearing was to examine and improve the SEC’s enforcement practices, with significant criticism aimed at the agency’s approach and its effects on businesses and individuals. Nick Morgan, the founder of the Investor Choice Advocates Network, accused the SEC of engaging in “piecemeal litigation on a case-by-case basis.” He highlighted instances where the commission can disregard adverse rulings in some jurisdictions to seek more favorable outcomes in others.
Overall, the hearing shed light on the concerns and doubts surrounding the crypto industry and its regulation in the United States.