June 20, 2020 10:00pm: Geoffrey Berman has stepped down as U.S. Attorney of the Southern District of New York after a dispute over his departure. Jay Clayton’s nomination to the position by President Trump will need U.S. Senate confirmation.
The Department of Justice released a late-night press release Friday from Attorney General William Barr who announced SEC Chairman Jay Clayton to serve as U.S. Attorney for the Southern District of New York. Clayton was nominated by the U.S. Senate on May 2, 2017, by a vote of 61–37 to confirm Clayton as Chairman of the SEC and was officially sworn in on May 4, 2017.
Barr noted Clayton will accept the nomination of President Trump and his new post as U.S. Attorney will start on July 3. With respect to how the President felt Chairman Clayton had performed in his role at the SEC, Barr stated, “For the past three years, Jay has been an extraordinarily successful SEC Chairman, overseeing efforts to modernize regulation of the capital markets, protect Main Street investors, enhance American competitiveness, and address challenges ranging from cybersecurity issues to the COVID-19 pandemic.”
Crypto industry thought leaders immediately noted this announcement and described what is at stake for crypto regulations.. Jake Chervinsky, who serves as general counsel at Compound and an adjunct professor at Georgetown University Law Center, posted on Twitter regarding the announcement. Chervinsky states, ‘The SEC chair is one of the most important U.S. officials for crypto regulation. Chairman Clayton’s replacement will have a massive impact on the industry…clarity on a wide range of issues for years to come hangs in the balance.”
Michael Arrington, the Founder of TechCrunch, CrunchBase and Arrington XRP Capital, noted his thoughts of Chairman Clayton’s departure from the SEC. Arrington stated, “Whatever else, Jay Clayton leaving the SEC is a win for crypto and sound money fans across the world. Hopefully he does less damage as a US atty.”
Meanwhile, Preston Byrne, Attorney at Anderson Kill, responded to Arrington’s opinion of Clayton and defended the SEC Chair for his time in the oversight of the crypto industry. Byrne stated, “I think he did a good job at the SEC and read the tech more or less correctly. He determined Bitcoin wasn’t a security, after all.”
Clayton has had a rocky relationship with the crypto and blockchain industry. As the Initial Coin Offering (ICO) frenzy of 2017 picked up as he took over at the SEC, his statement on Cryptocurrencies and ICOs in December of that year made clear the jurisdiction of the agency over crypto. While Clayton encouraged the idea of formation of capital from these new technologies, he placed the burden on crypto as proving itself to not being a security first before being launched into the marketplace.
Clayton pointed out, “…while there are cryptocurrencies that do not appear to be securities, simply calling something a “currency” or a currency-based product does not mean that it is not a security. Before launching a cryptocurrency or a product with its value tied to one or more cryptocurrencies, its promoters must either (1) be able to demonstrate that the currency or product is not a security or (2) comply with applicable registration and other requirements under our securities laws.”
Prior to that, Clayton oversaw the famous opinion of the SEC on the DAO, that provided a warning for future crypto projects by explaining how a project of DAO tokens on Ethereum blockchain was a security – without actually conducting any enforcement action. This provided a signal to the industry that future crypto projects could be found to be securities, as the DAO report had the blueprints of what a crypto fundraising effort that would be classified as a security looked like. Ultimately, the SEC in 2019 released a framework for determining if the sale of digital assets would be considered a security; however, this was criticized for potentially creating more confusion than offering the markets clarity.
Clayton had the most interactions with his colleague at the CFTC, the former Chairman J. Chris Giancarlo. Since Giancarlo has left the CFTC last July, he has been extremely busy in starting the Digital Dollar Project, focused on helping the U.S. be competitive with its own central bank digital currency. Giancarlo became famous on Twitter as ‘Crypto Dad’ after he made an impassioned speech before Congress on how his family became interested in investing and the markets because of Bitcoin rather than traditional securities.
For Clayton, there is no ‘Crypto’ nickname for him, although with how many in crypto feel regulations for the industry still remain cloudy and wanted Clayton to do more for the industry. However, Clayton at the SEC did have the job of enforcement and protecting investors, and as many leading regulators live by the motto, “Not on my watch,” this can be said of Clayton.
Trifecta Ticket of U.S. Regulators for Crypto Regulation?
However, SEC Commissioner Hester Peirce, also known as Crypto Mom for her willingness to engage with the crypto industry and desire to find solutions at the SEC to make starting a blockchain enterprise with tokens easier, is certainly a favorite in the Crypto industry. Peirce has been vocal since last year before Congress about the idea of a ‘safe harbor’, where a blockchain platform could start out as a security, but be given up to three years to prove itself otherwise and reach a point where it would no longer be classified as such.
Currently, the Office of the Comptroller of the Currency (OCC) has an Acting Comptroller Brian Brooks, who is the former Chief Legal Counsel of Coinbase. Brooks issued a request for public input on cryptocurrency and blockchain and how these technologies were used in banking today. Brooks sees himself as a maverick in his role and while Acting Comptroller, has the potential to bring new technological breakthroughs and FinTechs such as Stripe and PayPal into the regulatory purview of his agency under a special ‘Payments’ Charter.
The new CFTC Chair Heath Tarbert who last year declared Ethereum was a commodity as well as Bitcoin, has shown a desire for the U.S. to become more technologically advanced in the financial markets to maintain competitiveness with other countries. With Tarbert’s bullish stance on digital assets for the derivatives market and Brook’s approach to crypto at the federal banking level, a choice such as Peirce could be the trifecta of a lifetime for as much clarity as can be provided for crypto regulations in the U.S. without an act of Congress.