WASHINGTON, Jan 15 (Reuters) - According to three informed individuals, top Republican officials at the U.S. Securities and Exchange Commission are poised to launch a revamp of the agency possibly as early as next week, with the assumption of power by President-elect Donald Trump.
Among the strategies being contemplated by commissioners Hester Peirce and Mark Uyeda are starting the process that could eventually result in providing guidance or rules clarifying the agency's jurisdiction, as well as reviewing some cryptocurrency enforcement cases that are currently pending in the courts, as two of the sources indicated.
Although Paul Atkins, Trump's chosen SEC chair known for supporting cryptocurrencies and a former commissioner of the agency, is widely anticipated to head discussions along with President Biden's Democratic SEC chair Gary Gensler, the timing of his Senate confirmation remains uncertain.
Gensler is expected to officially take over on Jan. 20 as Trump is sworn in.
Starting next week, Peirce and Uyeda will form the majority among the agency's politically-appointed commissioners and are prepared to initiate initial steps in the transition, as noted by the sources.
Similar to Atkins, the duo are enthusiasts of cryptocurrencies who have questioned Gensler's firm stance on the industry and have suggested alternative, crypto-friendly initiatives in the past.
Peirce and Uyeda previously served as aides to Atkins during his SEC tenure from 2002 to 2008, and the trio reportedly share a close relationship, according to one source and multiple former SEC officials. Discussions have taken place among the three regarding potential changes in cryptocurrency policies, as disclosed by sources who opted to remain anonymous in discussing confidential policy plans.
Peirce, Atkins, and their representatives have not responded to requests for comment. Additionally, a spokesperson for Uyeda has not provided a comment.
Concerned about fraudulent activities and market manipulation, Gensler's SEC has initiated legal actions against several notable companies such as Coinbase and Kraken, according to data from the agency. The SEC has argued in many instances that certain crypto tokens function similarly to securities, insisting that companies and their products comply with SEC regulations, although some cases involve allegations of fraud.
In the initial stages of the new administration, the SEC is poised to review these ongoing court cases and potentially halt some litigations that do not pertain to fraud allegations, based on information from two sources. It is possible that some of these cases may be eventually dropped.
Many defendants in these cases argue that cryptocurrencies are more akin to commodities than securities and emphasize the need for clear guidelines on when SEC regulations are applicable. They have called for the SEC to create new regulations that would define when a token qualifies as a security.
Peirce and Uyeda are expected to kick off the early phases of developing these regulations, likely by soliciting feedback from industry professionals and the general public, as outlined by the sources.
Reuters and other sources have indicated that the SEC will also likely promptly revoke accounting instructions that have made it excessively costly for certain publicly traded companies to hold cryptocurrencies on behalf of third parties.
Notably, Trump, who has pledged to be a "crypto president," has encouraged regulators to reconsider their cryptocurrency policies, as reported by Reuters.
Bitcoin observed a surge in December due to the anticipation of the new crypto-friendly administration.
Nonetheless, despite an early start, reaching a consensus on crypto regulations could span several months or more, similar to the resolution of intricate enforcement actions that hinge on defining securities.
As pointed out by Philip Moustakis, a partner at Seward & Kissel and former SEC attorney, dismissing numerous enforcement actions would be unprecedented and could establish a risky precedent by politicizing the enforcement process.
In some instances, objections may arise from the court, as per statements made by other lawyers.
One strategy for the agency could involve reopening settlement negotiations, according to Robert Cohen, a partner at Davis Polk who previously worked in the SEC's enforcement division.
Settlement talks, aimed at avoiding prolonged and public legal battles, are customary, but cryptocurrency companies have indicated that the SEC under Gensler has been reluctant to engage in substantial discussions.
Cohen also suggested that the new SEC leadership is likely to remain stringent on combating cryptocurrency fraud.
"I think the industry wants to see fraudsters or wrongdoers held accountable," he added.