Former SEC Crypto Policy Advisor Worries Commission’s Approach Will Harm InvestorsFormer SEC Crypto Policy Advisor Worries Commission’s Approach Will Harm Investors
Corey Frayer, the newly installed director of investor protection at the Consumer Federation of America, also said the commission’s approach could “erode” market trust.
The Securities and Exchange Commission’s new approach to crypto enforcement will put investors at risk and could “rapidly erode trust in the markets,” according to the new investor protection director at the Consumer Federation of America and former senior advisor to previous SEC Chair Gary Gensler.
Corey Frayer also asserted that career staff had already been punished for “taking instructions” from the chair during a prior administration.
Frayer’s assertions come as Politico recently reported that members of Elon Musk’s Department of Government Efficiency are expected at the agency within days.
“I think that the general politicization and interference in these independent agencies could really upset the trust that markets, including market participants and investors, have in a steady, consistent application of the securities laws from an independent regulator,” Frayer said in an interview with WealthManagement.com.
Frayer’s tenure with CFA is only several weeks old. He arrived at the consumer advocacy group after several years as a senior advisor under Gensler, shepherding the crypto policy for the former SEC chair.
According to Frayer, he recommended strategies and ensured they were “executed consistently” across the agency. Before joining the SEC, he was an advisor on the Senate Banking Committee under then-Sen. Sherrod Brown (D-Ohio) and advised former Rep. Brad Miller (D-N.C.) on the House Financial Services Committee during its oversight of the Dodd-Frank Act.
According to Frayer, digital tokens under Gensler were considered securities “generally speaking,” and he asserted that the crypto industry was not “fundamentally incompatible with the securities laws.” However, Frayer said the industry didn’t reciprocate.
“There was very little interest in trying to work with the agency to register exchanges or brokers or tokens themselves because the general tilt of the industry is that they don’t want to be regulated by government at all,” he said.
In the weeks since Donald Trump’s second inauguration as president (and Gensler’s departure as SEC chair), Commissioner Mark Uyeda was named acting chair. In short order, Uyeda launched a “crypto task force” led by Commissioner Hester Peirce.
In a statement announcing the task force, Uyeda said the commission had previously relied on enforcement to regulate crypto, adopting “novel and untested” legal interpretations. The press release also said the commission had created an “environment hostile to innovation and conducive to fraud.”
But Frayer felt the approach to crypto illustrated a broader deregulatory agenda for the commission. Frayer said the danger for investors was all the more potent because crypto concentrated on retail investors and worried about the impact deregulation could have on the United States capital markets’ reputation as a “central” financial capital and flight to safety for skittish investors.
“It is great to be a leader in that space, but demonstrating that you are willing to allow a non-compliant market like crypto to grow unfettered, not to mention all the other things that have been going on in the current administration, signals to the world that the rule of law and the predictability of American markets might be at risk,” he said. “And that’s damaging to everyone in this space.”
As Musk’s DOGE widens its aperture to numerous government agencies (with court battles brewing over its latitude in cutting personnel and allocated spending), Politico reported that a commission employee said the group was “at the gates.”
Under Gensler, the commission sued Musk for allegedly not disclosing Twitter stock he owned in 2022, purportedly underpaying investors by over $150 million. Politico also reported a DOGE-affiliated account had been posted on X (formerly Twitter), looking for responses about potential incidents of “waste, fraud and abuse” at the agency.
However, Frayer worries that the SEC is already taking action against some of its staff and argues that the commission is punishing career staff for taking instructions from prior supervisors.
In particular, Frayer pointed out Jorge Tenreiro, who’d been the acting head of the commission’s Crypto Asset and Cyber Unit under Gensler. According to the Wall Street Journal, he was moved to a role in the SEC’s Office of Information Technology last month.
Frayer wasn’t convinced that one of the “most experienced litigators at the agency” also had such high technical skills that the commission needed in the IT department. Instead, it struck Frayer as a form of punishment.
“I don’t think there’s any other way to read it,” he said.
SEC officials did not respond to a request for comment prior to publication.
Frayer said he was aware of several other career SEC staff who’d been targeted or gotten blowback for work they’d been tasked with during the previous several years (including staff that had worked under both Gensler and Jay Clayton, the SEC chair during the first Trump administration). But he stressed that career staff like Tenreiro and others weren’t trying to settle partisan scores.
“Career staff don’t get to choose what they work on,” he noted. “They take direction from the chair.”
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