Exclusive Interview: Caroline Crenshaw, SEC Commissioner

Protecting Investors, The SEC’s Jurisdiction, A Bitcoin ETF, and More…

Ric Edelman: I’m very happy to welcome onto the program SEC Commissioner Caroline Crenshaw. She was an SEC staff attorney for many years before becoming an SEC commissioner. She's also a graduate of Harvard with a law degree magna cum laude from the University of Minnesota. And by the way, my favorite part, Commissioner Crenshaw is also a captain in the United States Army Reserve, JAG Corps. Commissioner, thank you so much for joining us on the program. Thank you for your service to our nation.

Commissioner Crenshaw: Of course. Thank you for having me. It's great to be here. And I will just start quickly before we get into anything else with the standard disclaimer that I must make as part of my job. The views I express are my own and don't necessarily represent the views of the Commission or the staff of the Commission. But with that out of the way, it's really great to be here. So thank you.

Ric: You've written and spoken about crypto for as long as you've been an SEC commissioner, so how would you describe yourself? Pro crypto, anti-crypto, something in between?

The Potential of Blockchain Technology

Commissioner Crenshaw: I am extremely supportive of blockchain technology's potential and really have been incredibly impressed by the level of research and activity that has been dedicated to its development. I think there's a lot of potential in that area. I think there's a lot of ways that we can make improvements to the securities industry, to the financial sector. But as someone who took an oath to protect investors, as you noted, and to ensure fair and efficient markets, I certainly do have some questions. You know, those aspects of crypto, of defi, of NFTs or nonfungible tokens that seem to involve an investor exchanging something of value with the expectation of a financial return based on someone else's effort - those types of offerings may fall within the SEC's jurisdiction. And so we're going to be looking at that. I certainly think we here at the SEC and investors do need significantly more information.

Ric: And so that's really the crux of it, isn't it? Because this is a global asset. You know, crypto trades around the world 24/7, 365 and a lot of these companies, these platforms, these coins and tokens, they were created, they exist, they trade elsewhere. And if they're trading outside the US, the SEC clearly could struggle to claim jurisdiction over them. And this is why it's so important, isn't it, that investors pay attention to where are you doing this. Who are you doing business with? Who's the counterparty? Because if they are an offshore entity, if they are outside the US, if they're with an organization that has chosen not to register with the SEC, then the SEC's consumer protections really aren't there for you. There are a lot, though, who have registered, who are complying with all the rules the SEC has established. So doesn't it kind of argue that if you're going to engage in crypto, which is, let's face it, risky enough as it is, that you can at least use a registered organization to somewhat reduce some of those risks and give you the engagement of the SEC itself?

Commissioner Crenshaw: I think that's critically important. I think registration serves absolutely fundamental aspects of our market. Without that, it's very hard to hold people accountable. It also sets a baseline of disclosures, and it creates an institutional discipline to focus on compliance and just a continuing recognition that investors have specific rights that must be respected.

Ric: Some projects do voluntarily disclose info on their websites and social media on the blockchain itself. But you think that's not enough?

Commissioner Crenshaw: I'd say some projects are more transparent than others, but even those projects that do disclose information about themselves or their experience, their partners and customers without registering, there isn't necessarily anyone to verify that any of their claims are true. The blockchain is very transparent as to certain limited types of data. So for example, time and number of transactions and the addresses of those who transacted - all perfectly transparent, can't disagree with that. But it doesn't reveal the identities of those who are transacting or for that matter, any other arrangements or connections they may have off chain. And I think it's just a reminder that compliance is more than a legal obligation. It's a market good that improves confidence and resilience and allows for more accurate pricing.

Is a Bitcoin ETF On The Horizon?

Ric: Two final questions for you, Commissioner. One, which is, I think, the most common one you get, which is one that we hear all the time from folks who are interested in investing in crypto - is a bitcoin ETF. It has eluded us to date. There isn't one on the market. The SEC has had a number of applications but hasn't said yes to any of them as yet. Tell us your thoughts about the potential for that. Is there going to be one day a Bitcoin ETF or should investors just stop asking?

Commissioner Crenshaw: I can't talk about too much of the internal deliberations of the Securities and Exchange Commission. So I will just say that we will have to see what all the applications say.

Ric: And one final question for you. What is it you're optimistic about in the area of crypto and what is it you're pessimistic about?

Commissioner Crenshaw: Sure. Some optimism. I think removing intermediaries has the potential to reduce errors and to lower costs for retail investors. I think there's a lot of research and development efforts underway and the potential is there for this to really involve and improve elements of investing or commerce in ways that we haven't even yet considered. That's a really critical part of this. I don't know where this is going, but I think there's really some interesting and cool opportunities. It may be that we've not yet settled on Crypto's killer app, but the lessons being learned today, I think, will allow us to better harness that when it appears so. I think those are things I'm optimistic about. I would say the concerns are what we've already talked about. So unless and until I think we can have a market where people have some basic information about these tokens, these platforms, these projects, we're not going to be able to evolve and grow as much as we would like, because there's always going to be that question about fraud, about the accuracy, and to really get the market adoption. I think we need some really basic fundamental protections like the SEC has put in place for every other security.

Ric: That's Caroline Crenshaw, a commissioner with the Securities and Exchange Commission here on The Truth About Your Future. Commissioner Crenshaw and I actually spoke for over 15 minutes. If you would like to listen, watch, read the entire conversation, just go to TheTruthAYF.com. Commissioner, thanks so much for being with us today.

Commissioner Crenshaw: Thank you again. It was a pleasure.