The SEC vs. CFTC —– Which Agency Will Fight Crypto Scams More Effectively?

By Evan Spicer

Director of Cryptocurrency Investigations

Few people imagine government agencies waging turf battles. However, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) seem territorial over crypto regulation and match their rhetoric regarding crypto scams. 

Most of us have heard of the SEC and the CFTC, but what is the difference between these two agencies regarding cryptocurrencies and fraud? Which one is more likely to take the lead in crypto regulation and what does this mean for people who’ve lost their money to crypto scams? 

The SEC and Cryptocurrencies

The SEC is headed by Gary Gensler, who used to be head of the CFTC, so he has broad experience with both agencies. Initially, crypto fans had reason to think that Gary Gensler would be sympathetic to digital currencies since he taught cryptocurrency and blockchain classes at MIT. However, lately, Gensler had had some strong words and actions for the crypto sector. 

For instance, Gensler’s SEC has issued multiple warnings to Coinbase, a highly popular cryptocurrency exchange platform. The SEC announced to Coinbase that it was going to investigate its activities because of numerous violations.

In addition, Gensler has been highly critical of the notion of a digital currency ETF and said publicly that because crypto asset entities have not been registered with the SEC, they can’t provide adequate protection to consumers. 

The SEC, as the name indicates, is in charge of regulated securities and exchanges. In other words, the SEC can regulate cryptocurrencies in the sense that these are considered investment vehicles. Simply put, to the extent that people buy cryptocurrencies expecting them to increase in value and if this involves a kind of contract or agreement, cryptocurrencies should fall under SEC regulation.

The SEC’s argument that it should be the agency to regulate cryptocurrency is persuasive as it relates to crypto brokers, crypto trading platforms, and initial coin offerings. However, the cryptocurrency used solely for financial transactions would fall under the authority of the Treasury. 

In addition to investigating Coinbase, the SEC sued Ripple Labs, alleging that it isn’t merely a currency, since, to fund its venture, it issues XRP tokens to investors who are betting they will rise in value. This is the use of cryptocurrency as a security, or a tradable asset, which would fall under the authority of the SEC. 

The CFTC and Cryptocurrencies

The CFTC deals with derivatives and commodities. Some examples of derivatives are swaps, futures and options, for instance, vehicles that are derived from the original assets. According to the CFTC definition, cryptocurrencies fit the definition of a commodity. In other words, items whose value rises and falls independently of the venture producing them. 

Bitcoin mining, for instance, would bolster the argument that cryptocurrency is a commodity. After all, precious metals, which are also mined (but in a more tangible way than cryptocurrencies) are commodities. NFTs, which are non-fungible tokens and not currencies, may also fit the CFTC’s definition of commodities, unless their purpose is to be traded, in which case, they would be securities. 

The CFTC has recently filed a complaint in federal court against Binance, alleging it violated trading rules and targeted particularly affluent and VIP customers. CFTC chair Rostin Behman has said that the FTX debacle has shown why the CFTC would be in charge of regulating cryptocurrency since many of Sam Bankman-Fried’s victims were trading crypto as futures and commodities. 

SEC vs. CFTC: Which Is the Better Regulator for Crypto Scam Victims?

Although both the CFTC and the SEC seem to be competing about who is tougher on crypto, the perception is that the SEC may be a bit tougher, not least because of the public statements made by companies targeted by the SEC. 

When notified that the SEC was investigating Coinbase, their legal aid chief complained about the SEC’s “legal threats” and said the crypto sector needed “more guidance, not more enforcement” from the SEC. 

It’s not surprising that the SEC takes an aggressive stance. The organization was founded in 1929 following investor abuses that led to the stock market crash. Also, anyone who searches crypto brokers may notice that SEC warnings about potential crypto scams are high on Google rankings. 

However, when crypto regulations have been proposed, many crypto enthusiasts have expressed their preference that the CFTC be in charge of crypto regulations. For instance, Citadel Securities supported legislation that would give the CFTC authority in the enforcement of cryptocurrency regulation. Currently, the CFTC regulates crypto futures. 

Whether the CFTC or the SEC dominates crypto regulation, it’s clear that both organizations have taken a strong stance on fighting crypto scams. Even if the CFTC is given the upper hand, it’s clear that the SEC will continue to issue warnings about crypto scams, and it’s important to always check these listings before signing up with a crypto broker. 

Have You Lost Money to a Crypto Scam?

Government agencies like the SEC and the CFTC are expected to have a greater role in protecting the public from crypto scams. It’s still important for consumers to do their due diligence and research brokers carefully before opening an account. 

If you’ve lost money to a crypto broker, it’s important to seek guidance right away.  Speak to MyChargeBack experts. We will consult with you, create a strategy and help you track down your funds on the blockchain.