US SEC Commissioner: "Safe Harbor" Law Will Make ICO Issues Worse​

U.S. Securities and Exchange Commission (SEC) Commissioner Caroline Crenshaw said the "safe harbor" proposal would exacerbate problems that arose during the initial coin offering (ICO) boom of 2017 and 2018.

Crenshaw made the above remarks at this month's annual "SEC Speaks" conference, and published his speech on the US SEC website on October 12. The commissioner believes the impact on investors and the market would have been far greater had the safe harbor been introduced at the time:

“I think the outcome could have been worse for investors and the market. ICOs and other digital asset offerings raised billions of dollars from investors, but most didn’t deliver on their promises. Investors suffered.”

She added: “I don’t think it’s a coincidence that these problematic issuances predate, and persist, the multi-year downturn in digital asset values (sometimes referred to as a crypto winter).”

The Safe Harbor proposal was proposed by crypto-friendly US SEC Commissioner Hester Peirce. The proposal, which seeks to give web developers a three-year grace period to build a decentralized web without fear of legal action from the U.S. SEC, has yet to receive majority support from other commissioners.

“Crypto Mom” Peirce proposed a revised version in March of this year. North Carolina Rep. Patrick McHenry has also proposed a three-year safe harbor proposal in the draft of the Digital Token Clarity Act of 2021, Cointelegraph reported on Oct. 5.

Crenshaw believes that instead of pushing the encryption industry towards compliance, the safe harbor proposal will put investors' capital at further risk, because encrypted tokens will be considered outside the jurisdiction of the US SEC within "a few years".

“I am also concerned that deregulation in markets prone to investor protection failures, limited options for investor remediation due to anonymity and disintermediation, and market manipulation will not maintain investor confidence or bring about lasting broadly used."

Crenshaw called for building a “bridge” that would allow token issuers and other cryptocurrency firms to work with the SEC to outline regulatory compliance plans, or to discuss specific exemptions as they deem “appropriate”:

“I believe that if market participants take proactive responsibility for compliance, we can build a bridge that fosters innovation while maintaining market integrity and providing the investor protections needed for the growth of these new markets.”

She added: "If you may fall within our jurisdiction, please work with us to describe your compliance program or explain why certain exemptions are appropriate."

Crenshaw's remarks echoed those of US SEC Chairman Gary Gensler. Gensler has often called on crypto companies to cooperate with and register with the U.S. SEC.

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