Commentary,  People,  Regulation,  United States

SEC Chairman Jay Clayton speaks on crypto, but leaves it to audience to connect the blocks

Cryptic remarks by the man who would be sheriff

NEW YORK—Securities and Exchange Commission Chairman Jay Clayton agreed to an on-stage interrogation by New York Times columnist and Dealbook founder Andrew Ross Sorkin Thursday night to discuss the impact of cryptocurrency and blockchain on markets. But after more than an hour of Q&A, including taking several questions from the audience of more than 500 people at the Times Center in Times Square, all we really learned was that Chairman Clayton’s wife does the driving, presumably so that he can catch up on his reading (he claimed it’s simply because she’s a much better driver).

Clayton responded to several of Sorkin’s questions about how the SEC would likely regulate crypto going forward with quips like, “we’ll see,” “we’re comfortable with our securities laws,” and “we’re open for business” (i.e, please come on down to D.C. and tell us what you think about how we should do it). For example, Sorkin asked a straightforward question about whether the SEC’s view was closer to that of Warren Buffett, who said that bitcoin is “probably rat poison squared,” or to the many who think that digital currency is the future of money. Instead of answering the question, Clayton launched into a long explanation of why the regulators who came up with our current system were foresighted geniuses.

At times Sorkin, an experienced interviewer who supplements his Times duties by hosting on CNBC, appeared visibly frustrated with Clayton’s tight-lipped responses. In an effort to extract more substantive answers, the interviewer soon careened into unrelated topics such as Brexit and the pros and cons of maintaining the current system of quarterly earnings reporting by public companies.

Eventually, the SEC Chairman did offer that it’s more likely that blockchain and crypto should adapt to current securities laws rather than the law needing to adapt to the newest technologies affecting securities markets. As an example, he pointed to how the onset and rise to dominance of electronic trading over its paper-based trading predecessor did not require any sea change in the regulatory scheme and structure of U.S. securities laws.

By the end of the interview, the only message the audience really got from Clayton was one of “Caveat Emptor”—buyer beware—when it comes to purchasing cryptocurrencies on various newfangled crypto exchanges that have sprung up, because such marketplaces don’t have as robust an arsenal of investor protections compared to more traditional registered securities exchanges like NYSE or NASDAQ. Clayton further emphasized that if you purchase crypto overseas, there is very little the SEC or any authority can do to retrieve your money from an offshore recipient if you are the victim of fraud.

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Andrew D. Beresin is a practicing securities attorney and former hedge fund trader. He advises Wall Street firms on regulatory matters and provides expert services on exchange-listed trading. Beresin is a former federal district court judicial clerk and a graduate of Harvard Law School.