• John Reed Stark, a former chief of the SEC’s Office of Internet Enforcement and a crypto skeptic, has slammed “cryptocurrency lobbyists” for labeling SEC enforcement actions as “regulation by enforcement” — calling the term a “Bogus Big Crypto Catch Phrase.”
• Stark argued that relying upon the flexibility of securities regulation to police the Internet cleared out the more egregious instances of early online securities fraud and allowed legitimate technological innovations to flourish.
• He stated that the repetitive chorus of RBE [regulation by enforcement] is not only a misguided, deflective effort designed to tap into sympathetic libertarian and anti-regulatory mores – it’s also utter nonsense.

John Reed Stark, a former chief of the Securities and Exchange Commission’s Office of Internet Enforcement (SEC OIE) and a crypto skeptic, has recently come out in defense of the SEC’s enforcement efforts in the crypto space. In a Jan. 22 post, Stark slammed “cryptocurrency lobbyists” for labeling SEC enforcement actions as “regulation by enforcement” — calling the term a “Bogus Big Crypto Catch Phrase.”

Stark argued that the argument is “sorely misguided” as it was just how securities regulations worked. He explained that litigation and SEC enforcement are actually how securities regulation works and that the flexibility of SEC statutory weaponry is an SEC hallmark, enabling SEC enforcement to keep fraud in check. He stated that the repetitive chorus of RBE [regulation by enforcement] is not only a misguided, deflective effort designed to tap into sympathetic libertarian and anti-regulatory mores – it’s also utter nonsense.

Stark then went on to explain that when the SEC OIE was created in 1998, there were critics who said SEC regulations were too vague and regulation by enforcement would stifle the growth of the Internet. He argued that in hindsight, relying upon the flexibility of securities regulation to police the Internet cleared out the more egregious instances of early online securities fraud. He also stated that vigorous online SEC enforcement efforts have also paved the way for legitimate technological innovations to flourish, rendering markets more efficient and transparent, thereby allowing investors more opportunities for success.

In conclusion, Stark argued that relying upon the flexibility of securities regulation to police the Internet, through the means of SEC enforcement, has been beneficial and necessary for the growth of the crypto space. He also noted that the term “regulation by enforcement” was a misguided and deflective effort that should not be taken seriously.