Pat Toomey blames the SEC for crypto lending platform crisis

According to Senator Pat Tomey, famous for his vocal support for the crypto industry, the United States Securities and Exchange Commission (SEC) could have prevented the loss of $12 billion in assets by investors who trusted Celsius, a crypto lending platform, that froze their deposits in June.

An official letter from Toomey to SEC Chairman Gary Gensler, dated by July 26, suggested that the Commission’s inability to clarify how it would apply existing securities laws to digital assets and services, drew to undesirable repercussions. As Toomey writes:

“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.”

According to Toomey, the SEC didn’t properly explain how the Howey and Reves tests applied to crypto lending platform products that paid interest to customers making crypto deposits. Instead, he emphasized, the SEC is choosing to regulate by selective enforcement. 

The senator mentioned the recent insider trading charges against a former employee of Coinbase, claiming that the SEC had a clear opinion on the securities’ status of these assets, yet it did not disclose that view publicly before launching an enforcement action. 

Starting from a dubious presupposition that most digital assets are securities, he notes, the SEC both makes it difficult for well-intentioned companies to comply and doesn’t serve great protection for customers with its regulation-by-enforcement style.

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As a result, the SEC’s continued refusal to give regulatory clarity to the crypto community, combined with “an apparently sluggish enforcement pace” harms not investors and innovation in general, according to Toomey.

In conclusion, Toomey poses nine questions to Gensler with a request to respond by Aug. 9. Among them are proposition to publicly identify other major crypto lending companies that hold no registration under SEC; explain why the Commission has not included 16 out of 25 digital assets traded by the Coinbase employee into its charges, and others.

On May 10, Toomey revealed his support for the Stablecoin Innovation and Protection Act, which would allow the Federal Deposit Insurance Corporation to back stablecoins in a manner similar to fiat deposits.