Daniel Gallagher, Robinhood’s Chief Legal Officer, criticized the U.S. Securities and Exchange Commission’s (SEC) approach to cryptocurrency regulation in a testimony submitted for a September 18 hearing before the House Financial Services Subcommittee on Digital Assets.
Gallagher outlined Robinhood’s efforts to comply with SEC regulations, noting more than a dozen meetings and calls over 18 months. Yet despite those efforts, the company received a Wells notice from the SEC’s Division of Enforcement in May.
He pointed out that SEC staff often did not respond to requests for guidance from Robinhood on how to proceed with its registration plan.
'The Scorched Earth Approach'
Gallagher has labeled the SEC’s strategy a “scorched earth approach” that negatively impacts cryptocurrency investors in the United States.
He argued that the lack of clear guidance on which digital asset transactions qualify as investment contracts remains a fundamental problem. This uncertainty has led to numerous SEC lawsuits against crypto companies, further hindering the growth of the industry.
Gallagher added that “regulation by enforcement” hurts American consumers seeking greater access to digital assets. It also stifles innovation in blockchain and weakens the United States’ competitive advantage in the global digital asset market.
He compared the United States to Europe, where the Markets in Crypto-Assets (MiCA) regulation provides a unified legal framework for cryptocurrency markets, enabling innovation to flourish abroad.
Next Steps for the SEC
Gallagher suggested that the SEC could use its existing authority under Section 36 of the Securities Act of 1934 to create a framework for registering and overseeing platforms that trade digital assets that are considered investment contracts.
He noted that the regulation could address important issues such as registration, consumer protection, asset management requirements, and transaction reporting. These measures, he said, could have mitigated some of the damage caused by FTX’s collapse in 2022.
The role of Congress
Gallagher stressed the importance of Congress establishing a clear and comprehensive regulatory framework for digital assets.
He argues that only Congress can provide the long-term regulatory clarity needed to ensure that Token Issuance, exchanges, and other market participants can operate without fear of ongoing enforcement actions.
Such clarity, according to Gallagher, is essential to maintaining the United States' position in responsible blockchain innovation and well-regulated digital asset markets.
