Gushiken Yona
Robinhood’s Chief Legal Officer, Dan Gallagher, delivered a scathing critique of the Securities and Exchange Commission’s (SEC) approach to crypto regulation during a House Financial Services Subcommittee hearing on Tuesday.
Gallagher Laments SEC’s Reliance on Outdated Legal Precedents on Crypto
Gallagher, a former SEC commissioner himself, accused the agency of a “scorched earth” policy that is stifling innovation and driving crypto businesses overseas. In his testimony, Gallagher lamented the lack of clear guidance on which digital assets the SEC deems to be securities, stating that “the most fundamental problem in digital asset markets is that there is no clear guidance on which transactions in digital assets the SEC deems to be investment contracts.”
He further criticized the SEC’s reliance on decades-old legal precedents like the Howey test, arguing that they are ill-suited to the complexities of the modern crypto landscape. Gallagher detailed Robinhood’s extensive efforts to engage with the SEC and seek regulatory clarity, including “over a dozen meetings and calls over a year and a half” to discuss the company’s cryptocurrency business and registration as a digital asset special purpose broker-dealer.
Rumors are floating that Dan Gallagher might replace Gensler in a Trump administration.
— Lark Davis (@TheCryptoLark) July 2, 2024
Gallagher is the Chief Legal Officer at Robinhood and has served as an SEC commissioner during Obama's term.
Like this post if you think Gallagher will be pro-crypto if elected. pic.twitter.com/rtaelTaOy6
SEC’s “Regulation by Enforcement” Approach on Crypto
Despite these efforts, he claimed the SEC staff was “generally non-responsive” to Robinhood’s requests for guidance and ultimately issued a Wells Notice, signaling a potential enforcement action. “Rather than issue rules to provide regulatory certainty to an industry craving it,” Gallagher stated, “the SEC has instead targeted individual firms, including Robinhood, through regulation by enforcement.”
He argued that this approach “is not the way Americans expect our government to work,” echoing concerns raised by federal judges and even SEC Commissioners Hester Peirce and Mark Uyeda about the agency’s reliance on litigation to regulate the crypto industry. Gallagher specifically pointed to the Paxos no-action letter from 2019 as an example of the SEC’s previous willingness to provide tailored relief to the digital asset industry without sacrificing investor protections.
Call for Provisional Crypto Regulatory Regime
He lamented the end of this “short-lived period of innovation at the Commission,” arguing that the current SEC “has done nothing to use its existing authority to provide this much-needed clarity and instead wistfully calls on cryptocurrency platforms and token issuers to ‘come in and register.'” While advocating for Congressional action to establish a comprehensive regulatory framework for digital assets, Gallagher also urged the SEC to utilize its existing authority under Section 36 of the Securities Exchange Act of 1934 to create a provisional regulatory regime.
He suggested that such a framework could address crucial issues like registration requirements, antifraud protections, custody rules, and transaction reporting. “But I would be remiss if I did not point out that, while Congress continues diligently to pursue much-needed legislation,” Gallagher stated, “the Commission has—and has had since 1996—the authority now to establish at least a basic, provisional regulatory regime for digital assets.”
Gallagher’s forceful testimony underscores the growing frustration within the crypto industry over the SEC’s perceived lack of clarity and hostile approach to regulation. As the industry awaits Congressional action, the question remains: will the SEC heed the calls for a more collaborative and proactive approach to regulating this rapidly evolving market, or will its “scorched earth” policy continue to drive innovation and investment overseas?
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Yona has no crypto positions and does not hold any crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Daily is an official media and publication of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.
