UBRI On Campus: Rutgers Law School Looks to Reform Fintech Regulation

This article was first published on Insights – Ripple
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When compared to the rest of the world, the Securities and Exchanges Commission (SEC) appears to have a higher rate of intervention in blockchain related cases. In just the last 18 months, the U.S. regulator ordered Telegram to stop selling its cryptocurrency, fined Kik Interactive $5 million over issues with its Kin token and is currently suing Ripple.

Recent research by Yuliya Guseva of Rutgers Law School and her colleague Douglas S. Eakeley, co-director of the Rutgers Center for Corporate Law and Governance and Alan V. Lowenstein Professor of Corporate and Business Law, confirms that the SEC “brings more enforcement actions against digital-asset issuers, broker-dealers, exchanges, and other crypto-market participants than do regulators in most other major jurisdictions combined.”

Prof. Guseva acknowledges that the size of the U.S. cryptocurrency market is a contributing factor to the SEC’s high rate of intervention. However, she believes the other key factor may be the use of the Howey test for determining whether a transaction should be classified as an investment contract and therefore registered as a security. The broad scope of the test has allowed the SEC to extend its authority over the past 70 years to a wide range of financial instruments, which today also include digital assets. 

Prof. Guseva cautions that, unfortunately, there may be enforcement inconsistencies that highlight how a Supreme Court ruling from 1946 may be unsuitable for judging 21st century innovations. In her recent paper, Guseva emphasizes that the SEC seems to have departed from its previously clear policy of prosecuting crypto-fraud and protecting investors. Kik, Telegram, and Ripple are important examples of this departure.

“I am worried about the dynamic inconsistencies in the recent SEC enforcement actions. Together with the broad reach of the Howey test, the inconsistencies in enforcement ...

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