Former SEC Enforcement Lawyer Outlines Expected New Bitcoin Enforcement As Cryptocurrency Surges In Value

News, Opinion, Regulation | December 7, 2020 By:

With the value of Bitcoin surging recently, some market observers expect fresh focus on fraud and investor deception, especially with new enforcement chiefs coming to the SEC and CFTC.

Below are comments from former SEC attorney Ashley Ebersole, an experienced securities enforcement partner in Washington with Bryan Cave Leighton Paisner, for some perspective on how new regulatory leadership will likely affect the cryptocurrency markets

Ebeserole notes:

“The much-publicized Bitcoin price increases are attracting a broader swath of investors to take a look at whether they should open a position in Bitcoin.  Part is due to the uptick in large investment advisers recommending that a modest Bitcoin allocation is good portfolio management, part is the flurry of news lately around major institutions who are themselves investing in Bitcoin or developing Bitcoin-based products, and part is investor FOMO – the fear of missing out.”

He adds that the recent mainstreaming of Bitcoin – with more trading platforms and prominent investors buying up assets than the last run-up in 2017 – will probably heighten regulatory oversight:

“Regardless of the reason for the increase, it’s making the Bitcoin space look more and more like a traditional asset space from an investor-protection and enforcement perspective.  Key differences are that investors may be less informed about what they’re actually buying, or they may be transacting with new providers with whom they have no history. Both provide potential scenarios for the SEC and CFTC to take action if investors are threatened or harmed.”

During his tenure at the SEC, Ebersole played lead roles in all aspects of agency investigations and litigation impacting US securities laws. He was a longtime member of the SEC’s cross-division working groups, helping shape the agency’s response to emerging technologies, including the Dark Web Working Group and Distributed Ledger Technology Working Group.

Ebersole said that world of decentralized finance – so-called DeFi – will be watching the SEC’s moves closely, as well as how the current market surge plays out.

“Many in the DeFi community take the view that they are sufficiently different from traditional financial services providers that they fall outside of existing regulation. But looking to the lessons of digital assets and cryptocurrency, they would be better served to recognize that regulators will find a way to oversee them, and the road will be easier if they take modest steps now.”

What will the new administration do? Ebersole thinks whoever takes over the SEC will exert a heavier hand on fintech and digital assets:

“Outgoing SEC Chair Jay Clayton has done much good for retail investors, but that has, at times, led him to take a cautious approach to digital assets and new technologies.  With a new SEC Chair, particularly some of the crypto-friendly potential nominees rumored to be under consideration, could we see a new, regulated era for digital assets? Could Commissioner Heather Peirce’s safe harbor plan actually gain traction?”

At BCLP, Mr. Ebersole advises companies and executives in crisis mode, including matters involving financial disclosures. He regularly helps clients respond to government regulators and enforcement agencies.

He previously worked as an investment banker with Salomon Smith Barney and was an executive of an internet content company.