Former SEC Attorney Tom Gorman Discusses Uncertainty of Spot Bitcoin ETF Approval

On 24 October 2023, Tom Gorman, a former attorney for the U.S. Securities and Exchange Commission (SEC), spoke with Bloomberg TV about the uncertain future of a spot Bitcoin ETF receiving SEC approval.

Thomas Gorman is a seasoned legal expert specializing in securities law, currently serving as a partner at Dorsey & Whitney LLP. With a career spanning over four decades, Gorman has amassed extensive experience in defending SEC investigations, enforcement actions, and white-collar criminal cases in the securities sector. His practice at Dorsey & Whitney, where he has been a partner since December 2010, focuses on areas such as insider trading, financial fraud, and the Foreign Corrupt Practices Act (FCPA). He also conducts internal investigations for organizations.

Before joining Dorsey & Whitney, Gorman served as the Senior Counsel in the Division of Enforcement at the Securities and Exchange Commission (SEC) from 1978 to 1985. During his tenure at the SEC, he acted as a Special Trial Counsel, gaining invaluable experience in complex criminal and civil securities litigation. His legal acumen extends to defending securities class actions and large antitrust and business litigation actions. Notably, he was involved in the defense of a large German multinational that led to the creation of a reparation fund for U.S. citizens interned during WWII. He also secured a $197 million treble damage verdict for a Peruvian government entity.

Gorman holds an LLM in securities regulation and antitrust from Georgetown University Law Center. He completed his JD, cum laude, from Cleveland Marshall College of Law at Cleveland State University and holds an AB from John Carroll University.

Gorman emphasized that the SEC, under the leadership of Gary Gensler, has been cautious in its approach to regulating cryptocurrencies like Bitcoin. He pointed out that while some cryptocurrencies have been allowed onto commodity exchanges, none have yet been permitted on securities exchanges, which are directly regulated by the SEC. According to Gorman, allowing a cryptocurrency onto a securities exchange would be a “very difficult lift” and would likely require extensive regulatory measures to ensure safety and compliance.

The former SEC attorney also touched upon the safety and security concerns surrounding Bitcoin and other cryptocurrencies. He noted that while wrapping Bitcoin in an ETF structure might offer some additional safety, the core issues related to the cryptocurrency’s original intent—to operate outside of regulatory oversight—still pose significant challenges. Gorman mentioned that entities like Hamas are using cryptocurrencies to finance their operations, raising ethical and security concerns.

Gorman was also asked about the recent letter from over a hundred lawmakers in both the Senate and the House to the Treasury and the National Security Council (NSC). The letter highlighted the national security threat posed by cryptocurrencies, citing their use by organizations like Hamas. In response, Gorman acknowledged that cryptocurrencies are being used for illicit activities. He argued that the relatively lax regulation on commodity exchanges makes it easier for such entities to raise funds, as compared to securities exchanges, which have stricter oversight.

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On 3 October 2023, Jay Clayton, former SEC Chairman, was featured on CNBC’s ‘Squawk Box’ where he discussed various topics, including the U.S. government’s case against Sam Bankman-Fried, the ex-CEO of the defunct cryptocurrency exchange FTX. While the conversation covered multiple aspects of the trial and the crypto industry, Clayton’s comments on Bitcoin’s regulatory landscape were particularly noteworthy.

Clayton confirmed that Bitcoin has been officially categorized as a commodity by both the Commodity Futures Trading Commission (CFTC) and the SEC. This classification, he noted, has legal implications and sets the stage for future regulatory actions. He also observed that the Bitcoin spot market has seen significant improvements in efficiency over the past three to four years.

Expanding on the subject of a spot Bitcoin ETF, Clayton expressed the view that its approval in the United States is becoming increasingly likely. He attributed this to the resolution of key legal questions surrounding Bitcoin, stating that most of the relevant legal issues have now been addressed.

Clayton further mentioned that the market surveillance mechanisms have improved, boosting confidence in the Bitcoin spot market’s efficacy. He concluded by saying that these advancements make the approval of a spot Bitcoin ETF in the U.S. more probable than ever. According to Clayton, the enhanced market efficiency and the resolution of legal questions are strong indicators that a spot Bitcoin ETF is on the horizon.

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