- SEC Chair Gary Gensler was seriously grilled yesterday over his approach to crypto enforcement
- Multiple members of the House Financial Services Committee criticized Gensler’s scattergun approach, which has led to dissatisfied staff and a lack of clarity
- The attitude towards the SEC chair represents a massive change from years gone by
Gary Gensler may have gone into yesterday’s House Financial Services Committee hearing thinking he was going to be praised for his work cracking down on the crypto space, but he was left in no doubt that his approach has made him some enemies. Several members of the committee heavily criticized Gensler for the way he has gone about his regulatory work in a number of fields, with high staff turnover and overzealous rulemaking among the criticisms, while calls to have the role of Chair eradicated have also grown.
Gensler Tackled Over Ethereum Comments
Things didn’t start well for Gensler, when Chairman Patrick McHenry demanded right out of the gate that Gensler clarify whether Ethereum is a security or a commodity, given the differing views adopted by differing regulators and indeed differing SEC chairs over the years. Gensler was reminded that his office has already cleared Bitcoin of being a security, but Gensler, who has already hinted that Ethereum might now be a security and whose office has launched legal proceedings against Kraken to that effect, still refused to confirm this:
Texas representative Pete Sessions was the next to criticize Gensler, this time over the SEC’s refusal to engage with entities it then sues, something that came to light this week with the lawsuit against Bittrex:
Oklahoma representative Frank Lucas echoed these thoughts, saying that the SEC’s rulemaking bonanza risked bleeding into other asset classes and having unforeseen complications. He also criticized the reduced public comment time on proposed rule changes allowed under the present SEC operations.
Davidson Demands SEC Chair Position Eradicated
If Gensler thought he was getting the worst of it, he was in for a shock. Majority Whip of the United States House of Representatives, Tom Emmer, showed why he has that lauded position by tearing into Gensler with the ferocity of a suited shark, explaining that he wanted ‘yes’ or ‘no’ answers from the SEC chair and then providing them when Gensler tried to embark on long-winded explanations:
Gensler refused to confirm whether he was the head of the SEC during the collapse of Terra/LUNA, with Emmer helpfully reminding him that he was, and then added that Gensler was still unable to protect investors from the collapses of Terra/LUNA and FTX despite having personally met then FTX CEO Sam Bankman-Fried on two occasions.
Emmer added that the SEC has demanded that exchanges and crypto service providers register with them, but has provided “any rules for how that can be done”. Emmer then read out a quote and asked Gensler whether he agreed with it. When Gensler demurred, Emmer explained that he was quoting Gensler himself. Emmer ended by slamming Gensler’s actions, which he said are handing the baton of digital assets into the hands of China and losing America’s first mover advantage.
Still, it wasn’t over for Gensler. Representative Warren Davidson began his five minutes by asking if Gensler had coordinated “acceptable responses” to members’ questions with the famously anti-crypto Elizabeth Warren. When Gensler denied this, Davidson asked if he had discussed them with anyone from the Democratic party, and for a very good reason:
Once again, Davidson demanded to know whether Ethereum is a security, and wasn’t satisfied with the answer, citing the discussion with McHenry over the issue:
I heard your exchange. They’ve been in place since 2015. You say in your statements that there’s clarity in the market and the rules are clear, just come on in. You can’t even answer the question!
Davidson then referenced his own bid to oust the position of head of the SEC in his closing remarks:
…Chairman Gensler, your record of failures to protect investors and abuses of power make it clear make it clear that we need to restructure the Securities and Exchange Commission.
Davidson wants to install an Executive Director who reports to the board instead of an all-powerful chair, adding that his bill “resonates across the political spectrum” and into the public sphere.
Sea Change in Political Opinion
The anger and indeed the exasperation with which some members addressed Gensler represents a sea change in the way that the crypto space is being treated and thought of. This approach towards the head of the SEC would have been almost unthinkable in previous years, but it goes to show that Gensler’s reckless, ill-thought, and scattergun approach to enforcement does nothing to protect investors and instead simply sows confusion and an industry in which America has been handed an advantage that it seems the SEC is determined to throw away.
