S5:E10 | What's Happening in Crypto and the Impact of a New Administration | Compliance In Context

The Securities Compliance Podcast: Compliance In Context

Welcome back to the Compliance In Context podcast! On today’s show, we welcome in Ranah Esmaili and Louis Froelich to help us review the current state of crypto and digital assets, the impact of a new administration, how firms operating in this space should be thinking about custody, and what the SEC Enforcement Division is focused on as it relates to this embattled asset class. In our Headlines section, President-elect Donald Trump has named his choice to run the Securities and Exchange Commission, and finally, we’ll wrap up today’s show with another installment of Outtakes, where we examine what a recent SEC complaint against the chief investment officer of a large investment advisory firm can teach us about the importance of trade allocation and avoiding instances of cherry picking in the delivery of advisory services.

Show

Headlines

• President-elect nominates former SEC Commissioner Paul Atkins to lead SEC

Interview with Ranah Esmaili and Louis Froelich

• What is the current state of crypto?
• What is the impact of a new administration on the SEC broadly?
• What is the impact on crypto, specifically?
• What baseline SEC rules should registrants still keep in mind?
• In the digital asset/crypto space, what is the current state of enforcement?
• What will the SEC continue to investigate (no matter the change in administration)?
• Do you think cases against platforms for being unregistered BDs will go away?
• What about custody? What is the current state of the Custody Rule proposal?
• What are SEC examination teams focused on when conducting examinations in the crypto/digital asset space?
• Are there any specific cases currently in litigation that you’re paying attention to and why?
• Using your crystal ball, what do you see changing in the crypto/digital asset space in 2025?

Outtakes

• The SEC recently sued a former CIO for allegedly orchestrating a “cherry picking scheme” allocating better performing trades to certain favored portfolios, and worse performing trades to other portfolios

Quotes

10:24 – “You know, I think [crypto] is here to stay. I also think that even in a decade from now, people maybe asking the same question. Let’s dive into where we’re at right now. Crypto is everything that you’ve said. It’s a wildly volatile asset class considered its own asset class right now. Most people still don’t really understand what the stuff does. As you know, if their businesses start to invest with it or trade with it, you know, kind of where to begin.” ~ Louis Froelich

11:50 – “The crypto lobby is a very real thing. It was one of the largest spenders in the last campaign. And so when sometimes people look at the headlines of the results or why is crypto such a thing, I don’t think it’s a coincidence, right? I think there’s a lot of people that made a lot of money in the space, had vested interests, have worked very hard and deliberately to kind of have the election results that we have and have crypto, kind of, part of the national conversation.” ~ Louis Froelich

17:42 – “So I expect we’re going to continue to see crypto asset offering fraud cases, cases involved in this appropriation, Ponzi schemes, maybe even insider trading cases. But that will, of course, depend on whether crypto assets are considered to be securities going forward. But those are really a significant portion of the cases that the SEC is bringing right now. So I think much is going to change, but some will stay the same.” ~ Ranah Esmaili

28:43 – “Until and unless there is, you know, clearer guidance or new guidance rules, new legislation, that kind of provide clarity related to digital assets, and whether there’s securities along the lines of what Louis was just talking about. You know, I think this audience and the compliance officers listening should really just assume that all the same rules and regs apply today. And that may very well change, but I just want to start with that note that there’s no change coming today. We’ve got a few months before, you know, the new, kind of, CFTC leadership will, you know, take the reins. And so for now the current state of play is the current state of play. So just don’t let your guard down.” ~ Ranah Esmaili