Former SEC official Michael Liftik has voiced concerns over the agency’s approach to crypto regulations. This remark comes after the SEC’s recent settlement with the decentralized finance platform Rari Capital.
Liftik condemned the regulator’s reluctance to set clear regulatory guidelines for cryptocurrencies while initiating multiple enforcement actions against crypto firms.
His comments have stirred intense debate over the SEC’s regulatory approach in the crypto industry.
Rari Capital Settles with the SEC
The US Securities and Exchanges Commission recently announced its settlement with Rari Capital. The regulator had accused the DeFi platform and its co-founders of misleading investors and conducting unregistered brokerage activities.
Notably, Rari Capital offers yield-bearing crypto investment services and manages over $1 billion in assets. The platform claims that its Earn pools can autonomously rebalance and manage investments.
However, SEC investigations revealed otherwise, and contrary to Rari Capital’s claims, its Earn pools required manual intervention.
According to SEC claims, Rari’s co-founders, Jai Bhavnani, Jack Lipstone, and David Lucid, allegedly acted as unregistered brokers. The settlement also extended to activities related to the platform’s Fuse pools.
While Rari Capital and its co-founders did not admit or deny the charges, they agreed to stop violating securities laws.
The SEC’s scrutiny of DeFi platforms continues to grow. The regulatory agency has stressed that even if a platform claims to be decentralized, it must still comply with securities laws.
Criticism from Ex-SEC Official
Michael Liftik, a former SEC official, criticized the agency’s approach to regulating digital assets. Liftik, now a Quinn Emanuel law firm partner, highlighted the SEC’s reluctance to provide clear rules for the crypto industry.
He argued that this lack of guidance creates challenges for companies trying to comply with regulations.
Liftik also pointed out the SEC’s “whack-a-mole” enforcement strategy. Instead of creating rules, the agency focuses on enforcement actions, targeting one crypto firm and another.
A memorable line from Michael Liftik, partner at law firm @quinnemanuel and a former senior @SECGov employee, from today’s @FinancialCmte hearing:
“The SEC has refused to issue new rules or meaningful guidance relating to digital assets and, at the same time, has engaged in… https://t.co/ZTCxly1ViG
— Eleanor Terrett (@EleanorTerrett) September 18, 2024
According to Liftik, this approach leaves firms in a difficult position as they navigate evolving regulations.
“The SEC has refused to issue new rules or meaningful guidance relating to digital assets,” says Liftik.
However, an X user disagrees with Liftik, claiming “it’s not the SEC’s responsibility to create new rules or provide significant guidance on digital assets.”
It’s not the SEC’s responsibility to create new rules or provide significant guidance on digital assets.
That’s Congress’s job.
— Chip – onthechain.io (@stephenchip) September 18, 2024
Lifik’s comments reflect a broader concern within the crypto industry. Many argue that the SEC’s unclear guidelines make it harder for companies to operate, especially as the agency continues to pursue actions against decentralized finance platforms.
Rari Capital’s Past Issues
Rari Capital’s legal issues go beyond the SEC settlement. In April 2022, the platform suffered a significant hack, losing $80 million. Jack Longarzo from Rari Capital explained how the hack happened.
Rari is aware of an exploit on various Fuse pools. Borrowing has been paused globally and no further funds are at risk.
The Rari team, and the rest of the Tribe, are working mitigate the loss and recover exploited funds, and will provide updates as soon as they are available.
— Jack Longarzo (@JackLongarzo) April 30, 2022
This hack affected the Fuse borrowing and lending platform, leading to Rari Capital halting new deposits and eventually shutting down. Rari Capital offered the hacker $10 million to return the stolen funds.
Also, following the hack, Rari Capital took steps to return performance-based fees to affected users. The SEC acknowledged these efforts in the settlement.
Rari Capital Infrastructure LLC, which took over after the hack, agreed to follow securities laws moving forward.
Disclaimer: The opinions expressed in this article do not constitute financial advice. We encourage readers to conduct their own research and determine their own risk tolerance before making any financial decisions. Cryptocurrency is a highly volatile, high-risk asset class.
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