Softer Crypto Regulations a Mistake, Leaves Investors Unprotected, Says Former SEC Director

John Reed Stark, former director of the Securities and Exchange Commission’s (SEC’s) Office of Internet Enforcement, savaged the idea of softening the regulatory approach to the digital assets industry during his appearance at the SEC Crypto Task Force’s first roundtable event in Washington on March 21.

Essentially, Stark argued that cryptocurrencies are indeed securities and as such they should adhere to existing securities laws. He said any accommodation or adjustment of laws to account for cryptocurrencies’ unique characteristics would be a mistake and will expose investors to unnecessary risks.

Stark: SEC Abdicating Responsibility to Protect Investors

During his appearance at the roundtable, Stark claimed that people who buy cryptocurrencies are obviously investors — not collectors as some have suggested — and should therefore have the same protections under US securities laws as other investors:

The people buying crypto are not collectors. We all know that they’re investors, and the mission of the SEC is to protect investors.

John Reed Stark during SEC Crypto Task Force Roundtable

Stark added that he’d read all the briefs of all the cryptocurrency cases involving the SEC. He said he believes in virtually every case the cryptocurrency should have been deemed a security:

I have read every single one of them. And they lost just about, I would argue, every single time.

John Reed Stark during SEC Crypto Task Force Roundtable

In a written statement accompanying his Roundtable testimony, Stark didn’t pull any punches, suggesting that by embracing regulatory reform the SEC may be facilitating a huge scam on crypto investors by crypto insiders:

My take is that by masquerading a mixed metaphor of grift, illusion and regulatory annulment as some sort of ground-breaking embrace of financial innovation, the SEC may not only be abdicating its historic mission of investor protection but may also be enabling crypto-financiers to laugh all the way to the bank (to deposit their fiat).

John Reed Stark, written statement to SEC Crypto Task Force Roundtable

On X / Twitter, the former SEC director doubled down, accusing the regulator of putting all the risk onto buyers:

This SEC’s abdication of its investor protection mission cannot be overstated. For crypto-investors, the new regulatory paradigm is now caveat emptor and for crypto-firms doing business in the US.

John Reed Stark

In her opening remarks at the roundtable, the SEC’s only Democratic commissioner, Caroline Crenshaw, lent support to Stark’s position saying:

We cannot poke holes in the foundation without expecting the walls may crack. Modifying the law to facilitate the success of a chosen product category is fraught with risk. Risk not only of weakening regulatory protections for that category, but of creating a negative domino effect on other areas of the market protected by the same laws.

Caroline Crenshaw, SEC Commissioner

Crenshaw has previously characterised the SEC’s new approach to crypto as “regulation by non-enforcement”.

Stark is One of Crypto’s Biggest Critics

It’s fair to say John Reed Stark is no fan of digital assets. 

In December of last year he told 60 Minutes in the US that “crypto is a scourge. It’s not something that you want in your society. It has no utility. it’s just pure speculation.” He added: “Every single crime you can conceive of is easier to do now because of crypto, especially ransomware, human sex trafficking—sanctions evasion, money laundering.” 

Not exactly a ringing endorsement.

Stark also previously likened a sponsorship deal between the defunct crypto brokerage firm Voyager Digital and the NBA team, the Dallas Mavericks, to partnering with a “heroin manufacturing firm or a blood diamond mining company.”

In his written statement to the Crypto Task Force Roundtable, he described crypto in particularly unfavourable terms, saying:

Crypto typically had no cash flow, no yield, no employees, no management, no balance sheet, no product, no service, no history operations, no earnings reports, no proven track record of adoption or reliance, and the list goes on (and on).

John Reed Stark, written statement to SEC Crypto Task Force Roundtable

Many industry figures and other experts have countered Stark’s arguments, Ripple’s CEO Brad Garlinghouse labelled the claims he made during his 60 Minutes appearance “provably false”, while investing guru Mark Cuban suggested in 2023 that Stark may suffer from “crypto derangement syndrome” — an irrational hatred of crypto.