William Hinman, who directs the SEC's Division of Corporation Finance, testified Thursday before the House Capital Markets, Securities, and Investments Subcommittee. The members had gathered to examin
William Hinman, who directs the SEC's Division of Corporation Finance, testified Thursday before the House Capital Markets, Securities, and Investments Subcommittee. The members had gathered to examine a sharp drop in IPOs over recent years.
Hinman told them his division had been focusing on digital assets and initial coin offerings. "We are striving for a balanced approach," he said, "one that ensures capital formation while maintaining a strong focus on investor protection."
Rep. Bill Huizenga of Minnesota asked whether ICOs could replace IPOs, and how they should be regulated. Hinman explained the complexity. "An instrument that may be called a coin may still have the hallmarks of a security and need to be regulated as such," he said.
Huizenga pressed further, asking if Hinman could name a coin offering that would not be a security. "In theory, there is a time when a coin may achieve a sort of decentralized utility in the marketplace," Hinman replied. "There are some coins where you wouldn't have an issuer to regulate. In theory, there may be coins where that lack of a central actor would make it difficult to regulate as a securities offering."
Rep. Brad Sherman of California, a crypto skeptic from previous hearings, objected to Hinman's balanced approach. He argued that ICOs drain capital from the productive economy, reducing job creation. Without investor protections or measurable economic benefits, Sherman said, no balanced regulatory framework could work. He asked Hinman why the SEC hadn't simply banned unregulated ICO investments.
Hinman answered that the balanced approach acknowledged blockchain's potential. Sherman clarified his stance: "I'm not saying ban blockchain—just ban the ICOs." Hinman responded, "Some folks are finding that the ICO instrument allows for a different type of enterprise, one that's more decentralized and which they think has some value."
Sherman cut him off. "Charlatans and scammers have always favored decentralized new enterprises," he said.
Rep. Tom Emmer of Minnesota, a known crypto supporter, rebutted Sherman's claims. "People tend to fear what they don't know," Emmer said. He criticized the ignorance he saw among his colleagues: "The typical attitude that I get from so many elected officials who have no idea what they're talking about is that everyone who is involved in areas those officials don't understand is either bad or dishonest. There's a lot of ignorance about Initial Coin Offerings and blockchain technology."
Though Emmer didn't name Sherman, his target was unmistakable. The two have clashed before at a previous subcommittee hearing on cryptocurrency and ICOs.
As Congress begins regulating digital assets, the two sides remain far apart. Sherman and his allies view ICOs as a threat to financial stability and consumer protection. Emmer and his supporters see them as innovation deserving minimal regulatory burden. Hinman's approach applies securities law where appropriate while allowing decentralized tokens room to develop. Winning support from both camps for such a framework may prove difficult.
