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Remarks before the Investor Advisory Committee

Dec. 2, 2021

Thank you. It’s good to be back with the Investor Advisory Committee again. As is customary, I will note that my views are my own, and I’m not speaking on behalf of my fellow Commissioners or the staff.

I’d like to thank the members for volunteering their time to provide us with advice. In addition to the important work you’re doing, I understand you’ll be announcing today a new Subcommittee on Disclosure. That’s a great addition to the fold.

Since the SEC’s founding in the Great Depression, we’ve been requiring disclosure of important information from companies.

The basic bargain is this: Investors get to decide what risks they wish to take. Companies that are raising money from the public have an obligation to share full and fair information with investors on a regular basis. Investors also are protected against fraud. There’s a reason President Roosevelt called the ’33 Act the “Truth in Securities” law.

Over the intervening decades, there have been many enhancements to those disclosures. Each change has been with an eye to our three part mission — investors, capital formation, and that which is in the middle, the efficiency of capital allocation.

Today, we have a number of projects related to how we can update disclosure regimes for modern markets.

This is about investors. Today, investors increasingly want to understand the climate and cybersecurity risks, as well as the human capital, of the companies whose stock they own or might buy. Large and small investors, representing literally tens of trillions of dollars, are looking for consistent, comparable, and decision-useful disclosures in these areas to determine whether to invest, sell, or make a voting decision one way or another.

I look forward to hearing from your new Subcommittee on those areas.

Today, I understand that you’ll be holding panel discussions on the crypto markets and the importance of protecting senior investors, as well as also making recommendations with respect to Individual Retirement Accounts.

I can’t stress how important it is to continue to protect older investors and those who are trusting their retirement savings to our markets. We at the SEC take that obligation seriously, and it gets to the heart of our work. I look forward to the readouts from all these conversations.

As to the crypto markets, I’d like to share a few thoughts.

First, Satoshi Nakamoto’s “Bitcoin Whitepaper”[1] and the crypto markets that followed have been catalysts for change. This innovation challenged some early financial technologies: money and ledgers. It also has challenged incumbent business models of trading, lending, and collectibles, as well as the official sector.

Second, with a $2.6 trillion aggregate market capitalization and more than 100 tokens purportedly with market capitalizations each more than $1 billion,[2] this is an asset class that belongs inside public policy frameworks of looking after investors, guarding against illicit activity, and protecting our financial stability.

Third, unfortunately, this asset class is rife with fraud, scams, and abuse in certain applications. There’s a great deal of hype and spin about crypto assets and crypto projects. In many cases, investors aren’t able to get rigorous, balanced, and complete information on tokens or trading and lending platforms.

Fourth, right now, we just don’t have enough investor protection in crypto. The American public is buying, selling, and lending crypto on trading, lending, and decentralized finance (DeFi) platforms, where there are significant gaps in investor protection.

This leaves markets open to manipulation. This leaves investors vulnerable. If we don’t address these issues, I worry a lot of people will be hurt.

Fifth, many of these tokens are offered and sold as securities. There’s actually a lot of clarity on that front. In the 1930s, Congress established the definition of a security, which included about 20 items, like stock, bonds, and notes.

One of the items is an investment contract. I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight.

A typical trading platform has more than 50 tokens on it. While each token’s legal status depends on its own facts and circumstances, the probability is quite remote, with 50 or 100 tokens, that any given platform has zero securities.

Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they meet an exemption.

Make no mistake: If a lending platform is offering securities, it also falls into SEC jurisdiction.

Sixth, it’s best not to wait for a big spill on aisle three — the crypto aisle, with all its tokens, trading and lending going on — to clean up the investor protection issues.

Thus, I’d like to ask anybody who may be operating crypto platforms or issuing crypto tokens, please, come in and talk to the staff at the SEC. To the extent there are challenges about how to register or come into compliance, we’d like to hear what those are. The staff is standing by, ready to better understand if any bespoke adjustments may be appropriate. At the same time, investors should receive the same protections they receive in other asset classes.

For those who want to encourage innovations in crypto, I’d like to note that financial innovations throughout history don’t long thrive outside of our public policy frameworks. If this field is going to continue, or reach any of its potential to be a catalyst for change, we’d better bring it into public policy frameworks.

I’ll close with that. Thank you.


[1] See http://satoshinakamoto.me/whitepaper/.

[2] See https://coinmarketcap.com/.

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