The US Securities and Exchange Commission’s (SEC) Commissioner Caroline Crenshaw has voiced her concerns about the agency’s recent decisions to dismiss multiple crypto-related cases, stating that it is a departure from established legal principles.
Crenshaw also criticized the SEC’s Division of Corporation Finance for its position that memecoins do not fall under the category of securities according to federal law. She argued that this stance lacks legal foundation and clarity.
SEC’s Shift in Crypto Enforcement
In the past week, the SEC has dropped several lawsuits against major crypto firms, including Coinbase, Robinhood, and Gemini. This change in approach follows the establishment of a specialized crypto task force aimed at developing future regulations.
While the SEC attributes these dismissals to ongoing regulatory considerations, Crenshaw believes that enforcement should not be abandoned while new policies are still being developed.
She stated:
“Should the Commission enact new regulations or Congress change the law, we can progress down a different path. But until that time, we have a framework in place and that framework should be applied and enforced equally as to all participants.”
Crenshaw argued that the courts have consistently affirmed the SEC’s authority over crypto, citing the example of the now-dismissed Coinbase lawsuit. In that case, she maintained that the agency had already presented a strong legal case, with the court agreeing “that the Commission adequately pleaded violations of the securities laws.”
Moreover, the Commissioner questioned whether these decisions weaken the SEC’s ability to combat fraud, including Ponzi schemes, and whether digital assets are now receiving preferential treatment over traditional financial instruments.
She also warned that selective enforcement could erode trust in the SEC and create perceptions of political bias. She concluded:
“Our agency’s job is to do what is right for investors, issuers, and capital markets. This is not it.”
The Debate Surrounding Memecoins
Crenshaw also criticized the SEC’s recent guidance on memecoins, arguing that it presents an incomplete and legally unsupported perspective.
She questioned the lack of a clear definition for memecoins, noting that the guidance loosely describes them as speculative assets influenced by online trends. However, she pointed out that these characteristics apply broadly to most digital assets, making the distinction unclear.
She asked:
“And exactly what is a meme coin, the category to which this guidance is directed? Other than how a promoter chooses to label it, what basis do we have to determine whether something is a meme coin?”
Furthermore, Crenshaw argued that labeling a token as a memecoin does not exempt it from securities laws. The Howey test, which determines whether an asset qualifies as a security, focuses on the economic realities of an offering rather than its branding. [Editor’s Note: It is also based on the sale of Floridian orange groves in 1934, almost 100 years ago. It was designed for real estate, leaseback agreements, and agricultural investments, not blockchain-based digital assets.] Crenshaw warned that promoters could exploit the lack of definition to evade regulation.
Another key issue, according to Crenshaw, is the assumption that memecoin prices move independently of managerial efforts.
She argued that project teams frequently influence market conditions through supply manipulation, buybacks, and strategic marketing campaigns. Fraudulent schemes such as pump-and-dumps and rug pulls remain prevalent in the sector, emphasizing the need for strong oversight.
In conclusion, Crenshaw stated that the SEC’s current approach does little to protect investors or uphold the integrity of financial markets. Instead, it introduces ambiguity and weakens enforcement efforts, leaving room for regulatory gaps that bad actors could exploit.
She wrote:
“This guidance is not a reasoned interpretation of existing law. It raises more questions than it answers about what a meme coin is and whether that is a definable or useful categorization for purposes of the existing securities laws.”
Mentioned in this article
]
