New SEC chief raises questions over investor protection with SPACs and Cryptocurrency

Gensler also signalled tight regulatory norms in private equity adding that he has directed his staff to review the current regulatory disclosures and asked for recommendations for enhanced reporting and disclosure and other possible reforms. [Image: Shutterstock]

The newly appointed Securities and Exchange chief Gary Gensler has pointed towards tougher regulations for the two most popular asset classes - Cryptocurrency and Special Purpose Acquisition Companies (SPAC).

Appearing for the first time in front of the House Appropriations Committee subcommittee oversight hearing on May 26 with lawmakers Gensler said that SPACs and cryptocurrencies had significant policy and investor protection issues.

The SEC chairman referred to SPACs as shell companies pointing out that 300 "blank-check IPOs" have been completed in 2021 so far as compared to only 13 in 2016.

"Beyond the real demands on SEC resources, the surge of SPACs raises a number of policy questions," said Gensler. "First and foremost, are SPAC investors being appropriately protected? Are retail investors getting the appropriate and accurate information they need at each stage -- the first blank-check IPO stage and the second target IPO stage? Second, how do SPACs fit into our mission to maintain fair, orderly and efficient markets? It could be the case that SPACs are less efficient than traditional IPOs."

Speaking on the 'highly volatile and speculative asset class', Gensler noted the significant growth in the valuation of such assets in the last five years. He added that the commission has been consistent in its communication to market participants that those who use initial coin offerings to raise capital or to engage in securities transactions must comply with the federal securities laws.

"Tokens currently on the market that are securities may be offered, sold, and traded in non-compliance with the federal securities laws," he noted adding that none of the cryptocurrency exchanges has registered with the SEC, posing a substantial risk to investors as compared to traditional securities markets, and to correspondingly greater opportunities for fraud and manipulation.

He further added that the SEC has prioritised "token-related cases" involving fraud or other significant harm to investors.

Gensler also signalled tight regulatory norms in private equity adding that he has directed his staff to review the current regulatory disclosures and asked for recommendations for enhanced reporting and disclosure and other possible reforms.