During a hearing of the House Financial Services Committee (HFSC) on Wednesday, September 27, several lawmakers had some harsh words for the US Securities and Exchange Commission (SEC) Chair Gary Gensler.
Gensler’s fiercest critic on the committee, Congressman Warren Davidson, repeated calls for an overhaul of the SEC, including firing its current Chairman.
During Wednesday’s HSFC hearing, lawmakers divided along broadly partisan lines, with Democrats typically more supportive of Gensler’s tenure at the SEC, and Republicans visibly angry at several of the agency’s perceived failings.
Much like their counterparts in the Senate, who widely rebuked the SEC chair during a hearing earlier this month, one of the policy areas House Republicans took issue with was the Commission’s approach to crypto regulation.
In his opening statement, the Committee Chairman Patrick McHenry accused Gensler of embarking on a “crusade against the digital asset ecosystem.”
“Your efforts to choke off the digital asset ecosystem […] has created real harm for consumers and markets,” he added.
Echoing industry concerns over the questionable legal basis for the SEC’s various lawsuits against crypto firms, McHenry argued that, “you said the law is clear but your actions have created more confusion and lasting damage.”
Although criticism of the SECs rulemaking on climate disclosure and the use of data analytics by financial advisors came exclusively from the Republican camp, objection to its crypto policy arrived from both sides of the aisle.
In a well-reasoned argument against the SEC’s designation of the majority of crypto tokens as securities, Democratic Representative John Torres interrogated Gensler’s interpretation of the concept of an “investment contract.”
Referring to the Supreme Court case of SEC v. W. J. Howey Co. that established the existence of an investment contract as the defining feature of a security, Torres implied that the SEC’s use of the concept extends far beyond the precepts of the initial 1946 ruling
“I worry that the term investment contract has become so infinitely malleable and manipulable that it means whatever you unilaterally think that it out to mean,” he told Gensler.
When it comes to crypto, “your interpretation of the term investment contract has no limiting principle and therefore invites arbitrary and capricious enforcement actions,” the lawmaker added.
Back in the Republican camp, Warren Davidson issued some of the most scathing criticism of Gensler and the SEC.
Referring to his proposed bill, the SEC Stabilization Act , Davidson called for a major restructuring of the US securities regulator.
Among other things, the bill would end the current Chairmanship and reduce the powers held by the Commission chair.
It would also increase the number of SEC Commissioners from 5 to 6, change the way the President appoints Commissioners and establish a new office of Executive Director of the SEC.
In his latest tirade against Gensler’s chairmanship, Davidson referred to a recent court opinion in which Judge Neomi Rao concluded that the SEC’s rejection of spot Bitcoin ETFs was “arbitrary and capricious.”
Commenting on Gensler’s response to the ruling, Davidson said “it seems that you don’t really recognize the authority of the judicial branch.”
He went on to lambast the SEC chair for continuing to hold up the approval of spot Bitcoin ETFs. Moreover, he cautioned Gensler against favoring recent applications by financial giants like Blackrock and Fidelity over those of other firms that have been attempting to list spot Bitcoin funds for years.
“Will this resemble some sort of free pass for one favored company while others remain locked out?” Davidson challenged, adding “it seems that’s happened before at the SEC.”
Discussing the SEC Stabilization Act, he told Gensler, “you’re making the case for this bill easier every day you’re acting as Chairman.”
“I wish the Biden administration would say you’re fired […] Congress hopefully will with the SEC Stabilization Act,” he concluded.