On Thursday, the Securities and Exchange Commission (SEC) filed securities fraud charges against a former Coinbase employee for wrongdoing, alleging in its charges that nine tokens listed on Coinbase’s platform qualify as unregistered securities. 

The SEC has never published rules defining what digital assets might qualify as securities, nor has it provided any rules that would make it possible for crypto exchanges to list, offer, or trade securities. The enforcement action builds on a history at the SEC of regulation through litigation, in which the agency pursues one-off lawsuits as a means of setting policy.

“This is a power grab, plain and simple,” said Chamber of Progress CEO Adam Kovacevich. “Why else would a federal agency announce brand new policy in a lawsuit against an ex-employee? This would be like if the EPA sued an individual coal miner in West Virginia to announce new emission standards. It’s a bad way to govern, and it doesn’t account for any of the public input people should have over these regulations.”

Following the SEC’s announcement of its lawsuit, CFTC Commissioner Caroline Pham stated that this is “a striking example of ‘regulation by enforcement.” Unlike the SEC, the DOJ did not choose to file securities charges against the wrongdoers.

The SEC has a history of pursuing crypto regulation through one-off lawsuits, including its lawsuit against Ripple. Rather than issuing clear rules for digital assets, the SEC has shut down nascent digital asset products, as was the case with Grayscale’s proposed spot Bitcoin ETF, without clear guidelines on what products can be offered.

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Chamber of Progress (progresschamber.org) is a center-left tech industry policy coalition promoting technology’s progressive future. We work to ensure that all Americans benefit from technological leaps, and that the tech industry operates responsibly and fairly.

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