The Office of the Inspector General (OIG) of the United States Securities and Exchange Commission has released its annual examination of the most serious management and performance challenges facing the agency. Crypto was on its list, as no surprise to anyone in the crypto community.
The OIG’s “Statement on the SEC’s Management and Performance Challenges” noted the agency’s previous statements about the lack of disclosure and “widespread noncompliance with existing securities laws by crypto asset market participants.”
The existing law leaves gaps in oversight related to crypto assets that are not securities and certain stablecoins. There have been calls for comprehensive legislation and interagency coordination. In addition, the report said:
“Caselaw concerning the application of the securities laws to crypto assets is limited and still developing.”
Those facts are well known. Employment issues in the SEC are less publicized. The report said the agency has been trying to add crypto specialist positions in its examinations, trading and markets, and enforcement divisions. The Office of the General Counsel and the Office of International Affairs are also seeking new to fill new crypto-related positions.
The SEC’s hiring efforts have been frustrated by a small candidate pool and high competition with the private sector for crypto specialists. Many potential candidates hold crypto assets, the report continued:
“Candidates are often unwilling to divest their crypto assets to work for the SEC.”
This disqualifies them from working for the agency under a determination by the Office of Ethics Counsel. The OIG is planning to give SEC recruitment practices more scrutiny in fiscal year 2024, it said.
The OIG reacts to outside requests for investigation as well as implementing internal examinations, although it is characteristically slow to react. The OIG was called on to investigate a potential conflict of interest on the part of former corporate finance director William Hinman, whose speech identifying Ether (ETH) as not a security has been widely cited.
The SEC’s Office of Inspector General's (OIG) report is worth a read. Besides the embarrassingly bad performance review, the OIG concludes “there is uncertainty” whether the SEC has jurisdiction over crypto. This is the SEC’s own cop on the beat talking. https://t.co/aOjOyzhQZX— Stuart Alderoty (@s_alderoty) October 27, 2022
Hinman had a financial interest in the law firm Simpson Thacher & Bartlett, which is a member of the Enterprise Ethereum Alliance, a good-government group called Empower Oversight claimed in a letter to the OIG in 2022. That claim has apparently not been examined by June 2023, when lawyer John Deaton called for the OIG to examine the Hinman speech again in an interview with Cointelegraph.