Robinhood CLO Accuses SEC of Stifling Crypto Innovation with ‘Scorched Earth’ Tactics

Robinhood’s Chief Legal Officer, Daniel Gallagher, has slammed the SEC’s “scorched earth” approach to crypto regulation, warning it stifles innovation and harms U.S. competitiveness.

Robinhood’s Chief Legal Officer, Daniel Gallagher, delivered a scathing critique of the Securities and Exchange Commission (SEC)’s approach to cryptocurrency regulation during a House Financial Services Committee testimony on Wednesday. Gallagher accused the SEC of employing a “scorched earth” strategy that, he argued, is harming American consumers and stifling innovation in the burgeoning digital asset industry, ultimately hindering the United States’ ability to compete on a global stage.

“The current Commission’s scorched earth approach to regulating cryptocurrency has real-world consequences,” Gallagher stated, emphasizing the detrimental impact of the SEC’s actions on both consumers and the industry as a whole.

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Gallagher, a former SEC commissioner himself, contended that the agency’s failure to provide clear regulatory guidelines for digital assets has created a climate of uncertainty and fear, leaving companies like Robinhood in a precarious position. “For too long, the U.S. digital asset markets and the millions of Americans who wish to participate in them have had to contend with innovation-killing federal regulatory uncertainty,” he testified. This lack of clarity, he explained, forces companies to operate in a regulatory gray area, hindering their ability to innovate, attract investment, and grow their businesses.

Instead of establishing a clear and comprehensive regulatory framework that fosters innovation while protecting investors, Gallagher claimed the SEC has opted for a “regulation by enforcement” approach. This involves initiating lawsuits and taking actions against crypto companies, often without providing clear guidance on what constitutes acceptable behavior within the industry. This tactic, critics argue, stifles innovation and pushes companies to operate outside the US, seeking more favorable regulatory environments in other countries.

“Because the Commission has taken a rigid, hostile approach to cryptocurrency and refused to provide regulatory clarity, U.S. customers have suffered as innovation has moved overseas,” Gallagher asserted. He highlighted that many other countries, recognizing the transformative potential of blockchain technology and digital assets, have adopted a more proactive and supportive approach by establishing clear regulatory frameworks that provide certainty for businesses while protecting consumers. These frameworks, he argued, have attracted investment and fostered innovation within their borders, positioning these countries as leaders in the emerging digital economy.

Gallagher urged the SEC to learn from these international examples and abandon its “scorched earth” tactics in favor of a more constructive approach. He called on the agency to create a provisional regulatory regime that would provide much-needed clarity and allow companies to register and innovate within established guidelines. This, he argued, would benefit American consumers by providing greater access to innovative financial products and services, foster innovation by creating a more predictable and supportive environment for businesses, and ensure the US remains a global leader in the rapidly evolving digital asset space.