Facing the recent “carpet bombing” of the Welsh notices against cryptocurrency companies, many lawyers have criticized the U.S. Securities and Exchange Commission (SEC) for abusing the enforcement process as a means of intimidation against cryptocurrency enterprises. On the other hand, the chairman of the U.S. Commodity Futures Trading Commission (CFTC) has stated that there will be even more cryptocurrency enforcement actions in the next two years.
Firstly, Jake Chervinsky, the General Counsel of Variant Fund, a venture capital institution, strongly criticized the SEC for abusing the Welsh notices. He stated that the number of Welsh notices issued by the SEC recently is beyond imagination, clearly indicating that the SEC regards it as a means of intimidation and is attempting to continue abusing the process. He also added, “The SEC is excessively focused on cryptocurrency rather than the stock and bond markets, which goes against the idea of power granted to it by Congress.”
Furthermore, Rodrigo Silva-Herzog, former legal advisor to Paradigm, pointed out the ambiguity of SEC enforcement and believed that it may go beyond its jurisdiction. SEC Chairman Gensler may have found himself in a difficult situation as a result.
Meanwhile, Ryan Sean Adams, co-founder of Bankless, commented on the upcoming U.S. election, stating that this level of excessive regulation has undermined the legitimacy of the SEC and could lead to the Democratic Party losing the election, which is not what they want.
In the past two months, or even in the past year, both exchanges and DeFi protocols have been on edge, fearing that they will receive Welsh notices from the SEC. Numerous cryptocurrency-related companies have already come under the scrutiny of the SEC:
February 2023: SEC will sue BUSD issuer Paxos for allegedly issuing unregistered securities.
March 2023: SushiSwap receives a subpoena and proposes the establishment of a $3 million USDT legal defense fund.
March 2023: Coinbase counters SEC’s Welsh notice, with its General Counsel criticizing that the SEC only enforces but lacks regulatory rules.
April 2024: SEC targets ETH and MetaMask wallets, and developer Consensys countersues the SEC.
April 2024: Uniswap receives a Welsh notice, and the founder states that they will fight against the SEC.
May 2024: SEC continues its enforcement actions, following Uniswap and Consensys, Robinhood also receives a Welsh notice.
Hayden Adams, co-founder of Uniswap, also released a meme self-mocking the situation, jokingly stating that they will join forces with related companies to fight against the SEC.
Currently, both the SEC and CFTC are engaged in legal battles with multiple exchanges, including Binance, Coinbase, Kraken, and KuCoin.
On the other hand, CFTC Chairman Rostin Behnam revealed during the recent Milken Institute Global Conference that with the increasing interest of retail investors and the rising market value of the cryptocurrency market, enforcement actions will also rapidly increase:
From my perspective as a regulator, we may see another cycle of increased enforcement actions in the next six months to one and a half years, or in the next two years.
It is reported that approximately one-third of all enforcement actions taken by the CFTC against cryptocurrency companies occurred in 2023.