KEY POINTS
- The subcommittee chair called out Gensler's SEC for injecting more confusion instead of providing clarity
- Rep. Lynch said it wasn't the SEC playing politics but crypto corporations wanting the industry to remain unregulated
- A Robinhood executive revealed that the fintech titan worked toward compliance, only to receive a Wells Notice
- Rep. Nickel blasted the SEC's refusal to listen to the industry and Congress's concerns
In an industry that seeks to bring financial power back to the people, users of digital assets are "dazed and confused" – that's according to a growing number of lawmakers in the U.S. House of Representatives.
Congress members heard from some of the cryptocurrency industry's key leaders Wednesday in a hearing of the House Financial Services Committee titled "Dazed and Confused: Breaking Down the SEC's Politicized Approach to Digital Assets."
Rep. Hill Delivers Scathing Opening Statement
Rep. French Hill, R-Ark., Chairman of the Digital Assets Subcommittee, said in his opening statement that the U.S. Securities and Exchange Commission inserted politics in the Congress' efforts toward helping provide regulatory clarity for the crypto industry.
He noted how SEC Chair Gary Gensler released a statement opposing the passage of the FIT21 bill that seeks to establish a regulatory framework for digital assets. An overwhelming 70+ House Democrats helped pass the said proposed legislation.
"It's clear that Chairman Gensler is stuck on an island of his own making ... instead of providing legal clarity so that those who can follow the law can do so, the Gensler SEC approach has injected even more confusion and uncertainty into the market and for market participants, and consumers alike," he said.
Rep. Lynch Begs to Disagree
Rep. Stephen Lynch, D-Mass., said his colleagues were trying to push a "false narrative" about the SEC. He accused the crypto companies of spending $119 million "to contribute and influence federal actions just this year alone."
"If anyone is playing politics, it is the crypto industry, and it appears they're playing it well," he said. Lynch, a ranking member of the committee, went on to slam crypto firms, saying they are pursuing a "crusade" to remain an unregulated market since the existing SEC securities regulations were not conducive to their business model.
Former SEC Official Points Out Regulator's 'Missed Opportunity'
Michael Liftik, now a co-managing partner at Quinn Emanuel Urquhart & Sullivan, said the SEC, where he used to be the Enforcement Practice Chair, missed an opportunity to lead the world in regulating emerging technologies such as crypto and blockchain.
He slammed the Wall Street regulator's "whack-a-mole enforcement" approach instead of focusing on helping the United States become the "epicenter" of financial innovation. The SEC drove the U.S. to become a "crypto no fly zone," he said.
Robinhood Executive Drops a Bomb – Wells Notice for Registration Efforts
Dan Gallagher, the Chief Legal, Compliance and Corporate Affairs Officer of fintech giant Robinhood, argued that the SEC's enforcement-first approach to digital assets is "bad for American consumers who want greater access" to crypto.
He said the lack of clarity from the regulatory agency has left service providers with no guidance and also rendered the country left behind in crypto innovation.
Gallagher, a former SEC Commissioner, went on to reveal that when the regulator demanded registration from companies offering crypto services, Robinhood complied, spending "significant time, money, and effort to pursue registration." In return for its efforts toward compliance, Robinhood received a Wells Notice.
He then urged Congress to "rectify" the SEC's failure to act on the current situation of the digital assets space.
Rep. Torres Cites Gensler's Muddled Answers
Rep. Ritchie Torres, D-N.Y., recalled how he previously asked the SEC Chief whether a Pokemon card sale constituted a security transaction, to which Gensler replied with a no.
Congressman @WileyNickel on how the SEC has lost the plot on crypto pic.twitter.com/VVfH80AxvP
— Bankless (@BanklessHQ) September 18, 2024
When asked if a Pokemon card sale through the blockchain constituted a security transaction, Gensler "equivocated," Torres pointed out. "He seems to hold that the mere use of a blockchain, the mere process of tokenization magically transforms a commodity into a security – it magically transforms a collectible Pokemon card into a security," he said.
Rep. Nickel Says SEC 'Didn't Get the Message'
Rep. Wiley Nickel, D-N.C., said that even with the passage of several laws that should help provide more clarity for crypto regulation, the SEC refuses to acknowledge the apparent uproar.
Congressman @WileyNickel on how the SEC has lost the plot on crypto pic.twitter.com/VVfH80AxvP
— Bankless (@BanklessHQ) September 18, 2024
"The will of Congress, and most importantly the will of millions and millions of our constituents is falling on deaf ears in the SEC." He said that under Gensler, the SEC has "taken the most hostile, aggressive and irrational approach to technology."
Rep. Davidson Points to Debt Box Case
Rep. Warren Davidson, R-Ohio, said there have been multiple cases wherein the SEC was proven by courts to be wrong, particularly mentioning Debt Box.
🚨WATCH: Rep. DAVIDSON speaks on the politicization of the SEC under Gary Gensler and a third party's push for custody of digital assets.
— Rep. Warren Davidson Press Office (@Rep_Davidson) September 18, 2024
“The SEC under Gary Gensler’s leadership has willfully undermined the ability to custody digital assets.” pic.twitter.com/jQurSVA5mL
The Debt Box case was one of the most controversial lawsuits initiated by the SEC. The court found that certain SEC lawyers provided "false" and "misleading" statements when presenting the regulator's case. It has since been dismissed. The agency was also fined $1.8 million for its "bad faith" handling of the case.
Since Gensler took the SEC's chairmanship, the financial regulator launched a massive crackdown on the digital assets sector, filing lawsuits and issuing Wells Notices to a wide range of providers, from crypto exchanges to blockchain protocols and custody providers.
