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The wind in the SEC's crypto sails

Illustration of a gavel hovering over a pattern of crypto coins about to smash one.

Illustration: Aïda Amer/Axios

The SEC's warning of potential enforcement action against Robinhood's crypto operations comes after recent court wins have put new wind in the agency's sails.

Why it matters: Those victories appear to have paved the way for a renewed SEC push to crack down on crypto, the Robinhood Wells Notice being the most recent example.

Context: In March, the SEC scored a major win in its lawsuit against Coinbase, with U.S. District Judge Katherine Failla largely declining to dismiss the case, saying crypto could be judged under existing securities laws.

  • "As explained herein, the 'crypto' nomenclature may be of recent vintage, but the challenged transactions fall comfortably within the framework that courts have used to identify securities for nearly eighty years," she wrote in her ruling.
  • Her decision came after U.S. District Judge Jed Rakoff rejected a bid to dismiss an SEC case against Terraform Labs late last year, maintaining that certain crypto tokens were securities.

What they're saying: The SEC cheered the wins. "As court after court has confirmed, the federal securities laws apply equally to everyone. You don't get your own rules," Gurbir S. Grewal, director of the Division of Enforcement at the SEC, said in an April speech.

Between the lines: The crypto industry has long criticized the SEC for overextending its reach and for using enforcement — rather than clear rule-making — to regulate.

  • These recent court decisions appear to confirm that the SEC has the right to make such moves, at least in parts of the crypto industry.
  • "Perhaps more importantly," Failla wrote, "the SEC is asserting neither a 'transformative expansion in its regulatory authority,' nor a 'highly consequential power beyond what Congress could reasonably be understood to have granted' it."

The big picture: "I think the commission has the momentum and legal arguments on their side to go after some of the big players," says Emily Garnett, a former SEC attorney and now shareholder at Brownstein Hyatt Farber Schreck.

  • "It was important for [SEC Commissioner Gary] Gensler to get these orders to say we have the legal support to move forward," she says.
  • In other words, don't be surprised if more enforcement actions come out of the SEC.

What we're watching: Robinhood has 30 days to respond to the Wells Notice.

  • The SEC's win, meanwhile, is still in the early stages of the Coinbase case— meaning this battle is far from over.
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