U.S. Senator Pat Toomey Blames SEC for Crypto Lending Products Fallout

U.S. senator Pat Toomey recently wrote a letter to Gary Gensler, the chairman of the Securities and Exchange Commission (SEC), concerning the Commission’s approach to regulations governing companies that offer cryptocurrency lending products to customers.

Toomey blamed the SEC for the losses incurred by customers of crypto lenders under the SEC’s purview. He stated that the funds lost by people who invested in crypto lending products offered could have been prevented if the regulator took the necessary action.

SEC’s Lack of Regulatory Clarity Reasons for Losses

In the letter, Toomey pointed out that the SEC’s adoption of the “regulation-by-enforcement” method is a fruitless approach.

Regulation by enforcement is a governing method that allows the SEC to create new rules that have not been publicly announced and then penalize companies that fail to comply with them.

The senator noted that the SEC selectively deciding when to apply its position on when digital assets and services are securities is making it difficult for companies to comply with the regulating body’s laws and has contributed to financial losses by consumers.

According to Toomey, if the financial watchdog had openly clarified how they would apply existing securities laws to new crypto lending products and services, “things would have been different.”

“Companies could have adjusted product offerings accordingly, preventing investor losses today, and the SEC would have been free to focus enforcement efforts on the worst actors,” he added.

Toomey Cites Recent SEC Charges

In the letter, Toomey further made reference to recent SEC charges against a former Coinbase employee and two of his acquaintances. The trio allegedly engaged in an insider trading scheme involving about 25 cryptocurrencies. The SEC claims nine of the tokens were unregistered securities.

Commenting on the case, Toomey said:

“In this circumstance and elsewhere, the SEC ostensibly had a clear opinion on why it thinks these digital assets are securities, yet it did not disclose that view publicly before launching an enforcement action.”

The senator also cited the recent case of Celsius, a crypto lending platform that recently went bankrupt. Toomey noted that the SEC’s failure to act before the event has cost Celsius’ users billions of dollars worth of investment.

Toomey further urged Gensler to look into his regulatory clarity proposal, concluding the letter with eight questions that he needed the chairman to answer regarding the issue.