Commissioner Crenshaw warns SEC’s crypto policy shift threatens market trust

The US Securities and Exchange Commission’s (SEC) Commissioner Caroline Crenshaw has criticized the agency’s recent decisions to drop multiple crypto-related cases, calling the move unprecedented and dismissive of long-standing legal principles.

The Commissioner also took issue with the SEC’s Division of Corporation Finance for its stance that memecoins do not qualify as securities under federal law, arguing that this position lacks legal foundation and clarity.

SEC’s retreat from crypto enforcement

Over the past week, the SEC has dropped multiple lawsuits against major crypto firms, including Coinbase, Robinhood, and Gemini. This shift follows the formation of a specialized crypto task force aimed at developing future regulations.

While the SEC attributes these dismissals to ongoing regulatory considerations, Crenshaw argues that enforcement should not be abandoned while new policies are still in development.

She wrote:

“Should the Commission enact new regulations or Congress change the law, we can progress down a different path. But until that time, we have a framework in place and that framework should be applied and enforced equally as to all participants.”

The Commissioner argued the courts have consistently affirmed the SEC’s authority over crypto, citing the example of the now-dismissed Coinbase lawsuit. In that lawsuit, Crenshaw argued that the agency had already established a strong legal case, with the court agreeing “that the Commission adequately pleaded violations of the securities laws.”

Meanwhile, the Commissioner questioned whether these decisions weaken the SEC’s ability to combat fraud, including Ponzi schemes, and whether digital assets are now being given preferential treatment over traditional financial instruments.

She also warned that selective enforcement could erode trust in the SEC and fuel perceptions of political bias. She concluded:

“Our agency’s job is to do what is right for investors, issuers, and capital markets. This is not it.”

The debate over memecoins

Crenshaw also criticized the SEC’s recent guidance on memecoins, arguing that it presents an incomplete and legally unsupported view.

She questioned the lack of a clear definition for memecoins, noting that the guidance loosely describes them as speculative assets influenced by online trends. However, she pointed out that these characteristics apply broadly to most digital assets, making the distinction unclear.

She questioned:

“And exactly what is a meme coin, the category to which this guidance is directed? Other than how a promoter chooses to label it, what basis do we have to determine whether something is a meme coin?”

She further argued that labeling a token as a memecoin does not exempt it from securities laws. The Howey test, which determines whether an asset qualifies as a security, focuses on the economic realities of an offering rather than its branding. [Editor’s Note: It is also based on the sale of Floridian orange groves in 1934, almost 100 years ago. It was designed for real estate, leaseback agreements, and agricultural investments, not blockchain-based digital assets.] Crenshaw warned that promoters could exploit the lack of definition to sidestep regulation.

Another key issue, Crenshaw noted, is the assumption that memecoin prices move independently of managerial efforts.

She argued that project teams frequently influence market conditions through supply manipulation, buybacks, and strategic marketing campaigns. Fraudulent schemes such as pump-and-dumps and rug pulls remain prevalent in the sector, emphasizing the need for strong oversight.

Concluding her remarks, Crenshaw stated that the SEC’s current approach does little to protect investors or uphold the integrity of financial markets. Instead, it introduces ambiguity and weakens enforcement efforts, leaving room for regulatory gaps that bad actors could exploit.

She wrote:

“This guidance is not a reasoned interpretation of existing law. It raises more questions than it answers about what a meme coin is and whether that is a definable or useful categorization for purposes of the existing securities laws.”

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