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“Regulating Crypto Through Enforcement Had a Dreadful Day in Court” Congressman Addresses Gensler’s Failure

Last Updated July 19, 2023 3:23 PM
Omar Elorfaly
Last Updated July 19, 2023 3:23 PM

Key Takeaways

  • US Representative takes Ripple’s triumph as an opportunity to scrutinize the SEC
  • The SEC’s Gary Gensler is gathering opposition within the US Congress
  • What would a post-Gensler crypto world look like?

The case of Ripple vs. the US Securities and Exchange Commission (SEC) proved to be a landmark event in the crypto world. Not only did the case defeat the SEC’s stance on whether crypto tokens, besides Bitcoin and co., should be considered securities, but it also highlighted the SEC’s shortcomings when it comes to setting clear regulations for the market.

Now, numerous US representatives within the US Congress are openly voicing their scrutiny against the SEC, led by Gary Gensler, regarding the regulating body’s failure to create a clear and fair regulatory framework for crypto.

“The SEC Regulates Using Enforcement, Not Clear Rules”

In recent news, Rep. Ritchie Torres took to Twitter  to openly criticize Gensler’s SEC’s approach to the crypto market, in light of Ripple’s triumph over the regulating body. 

“In a landmark legal opinion, Judge Torres resoundingly rejected the regulatory overreach of the SEC, which has been indiscriminately declaring all crypto assets, except Bitcoin, to be security,” tweeted the Congressman.

By emphasizing the need to prove the presence of an “investment contract,” Judge Torres’s reasoning represents a return to a rigorous application of the Howey test, which has been applied sloppily by the SEC.”

Congressman Torres is not in denial of key factors in Ripple’s case. After all, the “SEC reserves the right to appeal the District Court’s decision.” However, Torres also points out that “the chances of an immediate appeal are vanishingly small because there remain issues in the case that have to be resolved, and resolving them requires fact-finding (i.e. a trial), which takes time.”

A key statement in Congressman Torres’ letter to the SEC reflects the situation many crypto companies are struggling with in regard to clear regulation. 

“Under Chair Gensler, the SEC has not issued a single rule on crypto assets, nor has it given any clear guidance. 

All it has done is sent mixed messages, one after the[sic] another, not only contradicting the CFTC but often contradicting itself. When pressed about eh status of ether as a security, Chair Gensler has been all over the place: yes, no, maybe so.”

This is very reminiscent of the mandamus petition submitted by Coinbase, requesting the federal government to force the SEC to provide “clarity on regulations regarding crypto”. To no one’s surprise, the SEC rejected the request, claiming that Coinbase has no right to mandamus, which orders a government agency to fulfill certain duties.”

Coinbase is one of the crypto companies that are currently facing litigation from the SEC, regarding the status of crypto tokens previously sold on its platform, regarding whether they’re considered securities, as seen by the SEC. 

US Congress Vs The SEC

Congressman Torres’ statement is now part of a series of open acts of scrutiny against the SEC in the US House of Representatives.

Just last month, Tom Emmer and Rep. Warren Davidson proposed the SEC Stabilization Act bill to restructure SEC and remove Gary Gensler from the commission’s leadership position. 

House Majority Whip Tom Emmer noted, “American investors and industry deserve clear and consistent oversight, not political gamesmanship. The SEC Stabilization Act will make common-sense changes to ensure that the SEC’s priorities are with the investors they are charged to protect, not the whims of its reckless Chair.”

Rep. Warren Davidson also made a strong statement by noting that “U.S. capital markets must be protected from a tyrannical Chairman, including the current one,” adding that “That’s why I’m introducing legislation to fix the ongoing abuse of power and ensure protection that is in the best interest of the market for years to come. It’s time for real reform and to fire Gary Gensler as Chair of the SEC.”

Bill Hagerty, a US Senator, also tweeted, “The SEC is weaponizing their role to kill an industry. Allowing a company to list and stonewalling their attempts to register publicly is indefensible.”

On top of it all, US Senator Cynthia Lummis didn’t just criticize Gensler’s SEC by tweeting  that “The SEC has failed to provide a path for digital asset exchanges to register, and even worse has failed to provide adequate legal guidance on what differentiates a security from a commodity,” she also proposed a crypto bill that fills the gap left by the commission’s incompetence. 

The Lummis-Gillibrand Responsible Financial Innovation Act aims to answer all questions regarding the ambiguity of crypto regulations, be it taxing, trading, holding, or security/commodity status. Moreover, the bill identifies key parties involved in crypto trading, including coin issuers, crypto exchange, regulating bodies, governmental taxation bodies, individual coin holders, and traders.

A Gensler-free Crypto World

If we take a second to humor the thought of the SEC managing to fulfill the requirements of both governmental and private parties involved in the crypto market, it might start to seem a bit too utopian.

Starting with the SEC Stabilization Act. The bill would first and foremost see the dismissal of Gary Gensler, who has firmly placed himself as the antagonist of the crypto world. The bill also aims to bring back crypto companies leaving the US market.

Senator Lummis’ bill, the Lummis-Gillibrand Responsible Financial Innovation Act, also provides the first glimpse into what it would look like if the government managed to create a clear market regulatory framework.

Finally, Democrat presidential candidate Robert Kennedy Jr. envisions a future in which his administration would firmly place Bitcoin as a viable payment option and give individual investors more control over their wallets and tokens. 

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