Why the US Supreme Court won’t kneecap the SEC’s crypto crackdown
The Supreme Court has short-circuited regulators’ powers to interpret laws, which crypto pundits have hailed as a victory against the Securities and Exchange Commission.
However, they shouldn’t expect to see the markets watchdog tamed any time soon, legal experts say.
“There’s an expectation — you could call it Pollyanna-ish — that this is going to tame regulation, and dramatically transform the federal government,” Alan Konevsky, vice president and chief legal officer at blockchain company tZERO, told DL News.
But “it’s not going to tame regulation; it’s not going to obviate every regulatory agency,” he added.
The SEC, led by chair Gary Gensler, has fired off a barrage of enforcement actions against crypto companies — suing the likes of Binance, Coinbase, and Kraken.
Crypto pundits have complained that the agency regulates by enforcement, creating a hostile environment in the US for the industry.
Many now look to the November election and a potential second term for Donald Trump, which the industry expects will put an end to the SEC’s crypto crackdown.
Cautious optimism
Some expected the Supreme Court’s recent ruling to neuter the watchdog.
Ruling on a case involving herring fishing fleets, the highest US court overturned an established legal standard called the Chevron doctrine that for 40 years saw judges defer to regulators’ opinions.
The ruling was overshadowed in the news by a separate SCOTUS decision that may protect Trump from being prosecuted on certain charges.
Still, the Chevron ruling is far more momentous for the operation of the federal government, experts say.
Crypto promoters say the ruling arms the industry with a precedent against the SEC.
Konevsky, however, urged more cautious optimism.
Chevron’s demise will certainly create the perception that it’s now easier to challenge regulatory agencies, he said.
It will tip the balance of power toward the judiciary and away from regulators.
‘Are people going to use this as a hammer pretty much immediately? Yes! They’d be poorly advised if they didn’t.’
Alan Konevsky, tZERO
It may even encourage Congress to write more detailed laws to avoid vague statutes holding up lawsuits.
But it’s unlikely to hand immediate wins to the industry, either in their court battles with the SEC or in getting tailored legislation any quicker, Konevsky said.
A hammer
Gensler’s crypto crackdown is underpinned by his interpretation of US statutes that most crypto assets are securities and therefore under his purview.
The industry, on the other hand, holds that crypto assets are novel instruments, and Congress has not given the SEC the mandate to police them.
Konevsky said he expects to see litigants like these exchanges cite SCOTUS’s Chevron ruling in their defences soon.
“Are people going to use this as a hammer pretty much immediately?” he said. “Yes! They’d be poorly advised if they didn’t.”
Whether that’s a successful tactic as the cases wend their way through trial and appeals courts, only time will tell, he added.
“Historically, the SEC has relied less on what industry might perceive as expansive interpretations or taking advantage of statutory ambiguities,” Konevsky said.
“So to what extent this will be successful in SEC litigation is an open question… It takes years for cohesive national policy to arise from litigation, so we’re going to have to wait on that.”
Legislation from the bench
Still, the overturning of Chevron is good news for judicial review, and the separation of powers that underpins US democracy, Konevsky said.
Regulators, after all, should not be writing laws.
Others argue that neither should judges.
These critics say that overturning Chevron allows for so-called “legislation from the bench,” and corporations can swing that in their favour, as they shop for biassed judges.
“There’s a very important role for people who are in agencies, who have expertise” in their respective fields, Candace Kelly, chief legal officer at the blockchain nonprofit Stellar Development Foundation, told DL News.
Kelly is a former federal prosecutor and policy adviser in the Justice Department who also held a number of legal roles at Uber.
“Even though it may not be codified in Chevron deference, I hope there will continue to be some amount of respect for those who have that expertise,” Kelly said.
Kelly echoed the concerns of other critics of the SCOTUS ruling that without the Chevron deference, different courts will come to different interpretations of the same laws.
“The Supreme Court can only hear so many cases. There’s a risk of a high level of uncertainty being amplified,” Kelly said.
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