INX got SEC approval for a groundbreaking token sale. But companies need to weigh the risks of engaging with regulators, General Counsel Cathy Yoon argues.
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January 4th, 2024
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Top Crypto Lawyer says Don’t wait for the SEC
Protocol.com | Benjamin Pimentel | Feb 4, 2022
INX got SEC approval for a groundbreaking token sale. But companies need to weigh the risks of engaging with regulators, General Counsel Cathy Yoon argues.
INX made history last year with the first-ever public offering of a digital security registered with the SEC.
That move by the blockchain-based service for trading cryptocurrencies and digital assets was a big deal at the time: The SEC has had a reputation for being particularly tough on crypto, and companies have long complained that the agency hasn’t put out clear rules for how they should operate. This was highlighted by legal disputes between the SEC and players like Coinbase and Ripple.
General Counsel Cathy Yoon said INX’s IPO was a triumph for a company whose CEO, Shy Datika, wanted to “issue something digital without having the SEC come after me,” she told Protocol. INX did it by working closely with the SEC and doing everything by the book, a process Yoon described as “a 950-day journey” with the regulator.
See: SEC Regulation: Constructing a Crypto Regulatory Framework – New Tech, Old Rules
But Yoon offers this advice to crypto companies: Waiting for the SEC’s blessing isn’t always the smart move.
“My biggest concern is that companies will go to the SEC or other regulators with the idea that if you can get permission before you do it, that you're going to be OK,” Yoon said.
Yoon elaborated on how she thinks crypto companies should deal with the SEC in an interview with Protocol. She also talked about what to expect in the coming regulatory battles over crypto, why she’s unimpressed both with SEC Chairman Gary Gensler and Coinbase’s proposal for a separate crypto regulator, and her misgivings about a plan for a digital dollar.
What is your biggest worry on the regulatory front this year?
My biggest concern is that companies, projects and founders will go to the SEC or other regulators with the invitation, “Come speak with us,” with the idea that if you can get permission before you do it, that you're going to be OK.
But in order to get to the place where you go to the SEC with your proposal, you've already [spent] a lot of money. You have to build the team. You have to build the tech. You've incurred legal fees, auditing fees. [Maybe] the SEC is going to make a good-faith effort and try to help you find a solution. But that might take 18 months. If you're pre-revenue, how are you going to survive for 18 months while waiting for the SEC?
See: Gensler Speech Addresses Dynamic Regulation And Market Modernization
What allegedly happened with Coinbase when they went to speak with them — I only know Coinbase’s side — but they were served with a Wells notice. There would be potential enforcement action based on that meeting. Why would anyone go speak with the SEC if that's a potential outcome?
My approach is: I have a pretty good understanding of the existing rules and regulations. I’m a pretty smart lawyer. I’ve been doing this for a while. I think I can make a good-faith effort or attempt to look a regulator in the eye and say, “You know what, I'm not going to ask for permission. These are the current rules and regulations, and this is how I'm going to steer my company to do things.”
I'm not going to wait. I'm going to make sure that we try to bring revenue in the door and survive. And I'm hoping that approach will work. Instead of being shut down, [the regulator would say,] “We understand why you did it. We don't like why you did it this way. So maybe you can do it this way.”
See: Deloitte: Financial Markets Regulatory Outlook 2022
I think that would be the better approach. My fear right now is that it doesn't seem to me that the SEC, even if you went to them, would even be able to work with you to come out with a workable solution. So why are you going to wait when you can do things in a compliant manner, put something down and give the SEC something to work with?
As an operating company, I juggle every day: How much do I go and try to help move my company forward without asking for permission? What is that risk profile? Or do I stop everything and ask for permission? My biggest concern is that people will stop everything.
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