Understanding Securities Laws: The Goldfish Analogy and Crypto Compliance (Full Transcript)

Speaker 1: What do the securities laws have to do with goldfish? Many places around the country, we're required to use a leash when you walk your dog. Well, let's just say you get stopped because you're walking Rover unleashed. What do you think would happen if you told the police officer that Rover is actually a goldfish? You'd still get a citation, and that's because the law cares about what something actually is, not what you call it. Well, the same thing is true in the securities markets. As Justice Thurgood Marshall put it so well, Congress's purpose in enacting the securities laws was to regulate investments in whatever form they are made, and by whatever name they are called. That's why Congress's definition of securities includes more than 30 items, such as stocks, bonds, notes, and something called investment contracts. An investment contract exists when you invest money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others. Intermediaries for investment contracts, whether they're exchanges, brokers, dealers, clearinghouses, they need to comply with the securities laws and register with the Securities and Exchange Commission. Instead, many crypto platforms are just pretending that these investment contracts that they offer are more like goldfish. And the lack of compliance by these crypto platforms means that you don't have basic investor protections. These are things like rule books and surveillance to prevent fraud manipulation, or appropriate custody and yes, segregation of customer assets so they don't get misused or abused or simply become the property of the platform, especially if it goes into bankruptcy. And you lack basic protections as customers that you aren't just trading against the house. Further, many of these crypto platforms combine the activities of an exchange, broker-dealer, and clearinghouse under the same roof. And when a platform doesn't register these functions, that puts investors like you at risk. When a platform combines these functions, that creates conflicts of interest that undermine our time-tested investor protections. Crypto markets suffer from a lack of regulatory compliance. It's not a lack of regulatory clarity. As we alleged in a recent action, one crypto platform executive knew the law so well that he actually advised issuers to scrub specific language from their webpages in an effort to pretend that their tokens weren't investment contracts. You could say, in other words, they tried to say that their dogs were goldfish. It doesn't matter if you call yourself onshore or offshore. If you make securities available to American investors, you must comply with American laws. The law is clear. If you're a securities exchange, clearinghouse, broker, or dealer, you must come into compliance, register with us, and deal with conflicts of interest and disclose important information. For 90 years, these laws have helped protect investors like you. You might say, they're an investor's best friend.