SEC Appoints Regional Director to Oversee Texas Crypto Industry

In its escalating crypto crackdown, the Securities and Exchange Commission has appointed Eric Werner as its regional director in Fort Worth. He will oversee not only Texas, but a wide swath of the American West and Southwest.

Cryptocurrencies are digital assets that use cryptography to secure transactions and control the creation of new entities. They are decentralized and operate independently of central banks and authorities. Thus making them very attractive to people looking for an alternative to traditional finance.

While cryptocurrencies have gained popularity, they have also raised concerns among regulators and policymakers. One of the problems is the use of cryptocurrencies for illegal activities. Such as money laundering and terrorist financing, due to their anonymity and lack of regulation.

Clamps down on industry

To address these concerns, the Securities and Exchange Commission (SEC) has taken a more active role in regulating cryptocurrencies in recent years. In 2017 and subsequent years, the SEC has taken a firm line that some cryptocurrencies, such as Bitcoin, should be treated as securities under federal law.

This means that they are subject to the same regulations as traditional securities, such as shares and bonds. Since then, the SEC has taken numerous enforcement actions against cryptocurrency players it believes have violated securities laws.

Since 2018, the commission has also targeted token sales and ICOs. A form of capital raising in crypto, which the agency sees as unregistered securities sales. The SEC, under Chairman Gary Gensler, has stepped up its crackdown. Gensler has made it known that he believes that essentially every coin and token, except for Bitcoin, is an unregistered security.

Adds firepower

The SEC’s regional directors oversee the agency’s enforcement and regulatory activities in their regions. Eric Werner, who has over 20 years of securities enforcement experience, will now lead a broad spectrum of the US West and Southwest. Including Texas, which is home to many cryptocurrency companies.

“I am delighted that Eric will lead the Fort Worth Regional Office,” said SEC Chairman Gary Gensler. “In this new role, Eric will draw on his broad range of experience from his more than 25 years with the SEC. I also want to thank Marshall Gandy for serving as Acting Co-Director and for his continued work with the SEC.”

The appointment comes amid an escalating crackdown on cryptocurrencies across America. Given the hostile conditions across the country, this latest development is unlikely to improve relations. Time will tell how Eric Werner’s appointment affects the SEC’s enforcement activities in the cryptocurrency industry.

On the one hand, given his extensive experience in securities enforcement, it is likely that he will continue to prioritize the agency’s mission. Mainly to protect investors and maintain the integrity of the securities market. However, the other half can hinder growth and innovation.

Werner cut his teeth during Jay Clayton’s reign at the SEC. He has described how he first met Clayton in 2018 when the latter had a heated argument about crypto and how to regulate it. Fast forward to 2022, when the new CEO played a role in a highly publicized SEC enforcement action against crypto assets.

Decisive actions

Last October, Werner oversaw a highly publicized SEC enforcement action against what the agency called a “fraudulent and unregistered” offering of cryptoassets targeting Latino investors. Here, the SEC used an emergency measure to close the offering and pursue legal action against those involved.

CryptoFX, a Texas company that Mauricio Chavez and Giorgio Benvenuto ran, faced regulatory heat. The official watchdogs accused the company and its owners of violating securities laws by fraudulently soliciting funds from inexperienced investors using crypto’s appeal.

They allegedly raised $12 million through a crypto Ponzi, and spent much of the money on a lavish lifestyle. The SEC alleged that CryptoFX made false promises of high returns and misled investors about the risks involved in their investment strategy.

It’s worth noting that the SEC’s use of an emergency action here is not without precedent. The agency has used emergency actions in many high-profile cases. Including actions against Telegram and its Initial Coin Offering (ICO).

Last step

Last month, the US regulator announced emergency measures against investment adviser BKCoin Management over an alleged fraud scheme. Here, the Miami-based firm raised $100 million from at least 55 investors, supposedly to connect to cryptocurrency. But instead, they allegedly used the funds to release luxury goods and make “Ponzi-like payments.”

The SEC can use emergency measures to shut down fraudulent or illegal activities that threaten investors, even without first giving the parties notice and an opportunity to be heard. This is known as an “emergency cease-and-desist order.”

In the case of the fraudulent and unregistered offering of cryptoassets above, the SEC used an emergency measure to shut down the offering and pursue legal action against the individuals or companies involved.

Emergency actions are a tool that can help protect investors in extreme cases. However, they can be highly controversial, as parties involved will want to dispute the allegations before an order is issued.

Concerns about brewing in Texas?

Some in the crypto industry want Texas to become a crypto hub. Is the appointment of Werner an attempt to kill the infant industry in its bed? What can investors in the West and South West expect from Werner following his promotion? Will there be more emergency actions? These are just some of the questions that arise after the latest appointment.

The blockchain industry has advocated for Texas to become a hub for cryptocurrency and other emerging technologies. This has been seen in recent bills and actions by state officials, such as Governor Greg Abbott’s March 2021, expressing support for cryptocurrency and blockchain technology innovation in Texas. Primarily catering to miners.

Texas has a reputation for being a business-friendly state, with a low tax burden and a growth-friendly environment that attracts entrepreneurs and investors. These factors, combined with the state’s technological infrastructure and favorable regulatory environment, make it an attractive location for blockchain companies looking to establish a presence in the United States.

Furthermore, Texas has several universities with solid computer science and engineering programs. This could provide a talented pool of graduates with the skills needed to support the growing blockchain industry.

However, as with all emerging technologies, cryptocurrency and blockchain pose risks and challenges. Such as regulatory hurdles and the need to protect consumers from fraud and other abuse. As such, any effort to establish Texas as a cryptocurrency and blockchain hub must be carefully balanced with effective regulation and consumer protection measures. This is where the SEC can infiltrate the crypto network using emergency actions. A way to transcend any remaining legal boundaries and act as an authoritarian state body.

BeInCrypto reached out to Eric Werner’s office but had not heard back by the time this article went to press.

Looking forward

Overall, it is difficult to predict the future actions of the SEC and its regulators. However, it can be noted that regulatory agencies such as the SEC are mandated to protect investors and maintain fair and efficient markets. When it comes to cryptocurrencies, there are concerns about fraud, manipulation and other abuse. Which the SEC is responsible for recording.

While some may view emergency actions as overstepping legal boundaries, or as authoritarianism, such actions are typical of situations where there is an imminent threat to investors or markets and not enough time to follow standard regulatory procedures.

Emergency measures are also subject to judicial review and can be challenged in court if they are unsupported by law or outside the agency’s statutory authority.