Republicans yank SEC chief over crypto lawsuits, climate rules

Republicans yank SEC chief over crypto lawsuits, climate rules

Securities and Exchange Commission (SEC) Chairman Gary Gensler defended his aggressive regulatory agenda from a wave of Republican attacks during Tuesday’s House Financial Services Committee hearing.

Republicans blasted the SEC’s lawsuits against cryptocurrency firms during Gensler’s tenure, accusing him of refusing to comply with congressional requests for documents.

GOP lawmakers on the panel took aim at Gensler’s proposed market overhauls, including regulations to tighten rules for crypto firms and mandate disclosure of public companies’ climate change risks. They noted that Gensler has proposed more than twice as many rules as his predecessors.

Flashback: Gensler compares cryptocurrency market, regulations to ‘Wild West’

Tuesday marked Gensler’s first appearance on the panel since October 2021, and his first under GOP control of the House.

Genser argued that US capital markets are the strongest and safest in the world because of their robust rules. He said new innovations put investors at risk, spurring the need for updated rules.

“The SEC is the policeman on the beat looking out for your constituents,” he told lawmakers.

Republicans grill Gensler on crypto

Chairman of the Securities and Exchange Commission Gary Gensler
Securities and Exchange Commission Chairman Gary Gensler answers questions during an oversight hearing before the House Financial Services Committee of the SEC on Tuesday, April 18, 2023. (The Hill)

Rep. Patrick McHenry (RN.C.), the committee’s chairman, blasted Gensler’s SEC for launching more than 50 enforcement actions against crypto companies.

He said it is irresponsible for the SEC to sue the firms for failing to register with the SEC when the law is not clear whether certain digital assets are securities or commodities. The Commodity Futures Trading Commission (CFTC) has sparred with the SEC over which agency has authority over certain cryptocurrencies.

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Crypto meltdown: Crypto faces a crisis of confidence amid the FTX collapse

“You’re punishing digital asset firms for allegedly not following the law when they don’t know it will apply to them. It’s nonsense, McHenry told Gensler.

When pressed by McHenry to define whether Ethereum, the second-largest cryptocurrency, is a security or a commodity, Gensler declined to answer, saying only that a token is a value when investors expect a profit from it.

“There is a lack of clarity here in the market. Can you at least agree to that?” McHenry said.

Gensler responded that it’s clear the SEC has the authority to regulate crypto, leaving McHenry visibly frustrated.

“Does it bother you that your approach to the digital asset industry is actually driving that industry out of the US?” Rep. Tom Emmer (R-Minn.), a top crypto ally, asked Gensler.

“I’m trying to drive it into compliance, and if they don’t comply with the laws, they shouldn’t be offering their products to American investors,” Gensler responded.

The crypto industry has lashed out at Gensler, accusing him of creating a hostile environment for crypto that is forcing digital asset firms, including failed crypto exchange FTX, to move operations overseas.

Gensler told lawmakers that the crypto market is “riddled with non-compliance” and insisted that the SEC does not need additional authority from Congress to regulate crypto.

“This failure to comply not only puts investors at risk, but also puts the public’s confidence in our capital markets at risk,” Gensler said.

The crypto industry has suffered a wave of bankruptcies that have weakened public confidence in digital assets.

Disgraced FTX founder Sam Bankman-Fried worked closely with lawmakers to draft a bill intended to be the first comprehensive crypto-regulatory law, which would have given enforcement to the CFTC instead of the more powerful SEC.

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Rep. Brad Sherman (D-Calif.), the top Democrat on the Capital Markets Subcommittee, said lawmakers should pass legislation to categorize all crypto assets as securities.

“That way, it would be very clear that investors in crypto get the same protections as investors in stocks, bonds and other intangible assets acquired for an investment purpose,” Sherman said.

Business groups are also fighting the SEC agenda

Traffic moves along 99 South in Fresno, Calif., on Dec. 28, 2017. (John Walker/The Fresno Bee via AP)

Republicans are largely allied with corporate America in their push to delay, modify or scrap SEC proposals that they say would undermine US competitiveness.

The U.S. Chamber of Commerce sent a recent letter to the committee that took aim at Gensler’s aggressive regulatory agenda, noting that his 53 proposed regulations are “twice as many rules as his predecessor in just half the time.”

“The strength of regulations at the SEC is unprecedented and deserves close scrutiny by Congress,” Tom Quaadman, executive director of the Chamber’s Center for Capital Markets Competitiveness, told lawmakers.

Quaadman, who gave lawmakers a list of questions for Gensler, cited an October 2022 SEC inspector general’s report that raised concerns about the agency’s ability to implement the large number of proposals. The report pointed to attrition among SEC employees.

“I get the impression from personnel across the SEC that there are concerns about the high volume and the fast pace of this rulemaking. Let’s try to get it right, not get it done in a hurry,” said Rep. Frank Lucas (R-Okla. ) to Gensler on Tuesday.

The National Association of Manufacturers sent a letter to committee members Tuesday criticizing the climate disclosure rule, arguing it would “significantly increase compliance costs and legal risks for public companies.”

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The lobbying group asked the SEC to remove a provision that would impose new reporting burdens on private businesses that are part of a public company’s supply chain.

Gensler said Tuesday that the SEC is taking those comments into account when drafting the rule. He said the rule is not intended to impose obligations on non-public companies.

“We have received 15,000 comments. On the investor side, there is almost unanimous support for mandating climate risk disclosures,” Gensler told lawmakers.

Democrats largely defended Gensler throughout the hearing, urging him to ensure the proposed rules remain strong after public comment periods.

“These reforms are not being rushed. They have waited a long time, says rep. Maxine Waters (D-Calif.), the committee’s ranking member. “Meanwhile, Republicans are eager to rush forward with measures that would deregulate our capital markets.”

Republicans tear Gensler over transparency

Rep.  Bill Huizenga (R-Mich.)
Rep. Bill Huizenga (R-Mich.) questions during a House Financial Services Committee oversight hearing of the largest U.S. banks Wednesday, Sept. 21, 2022. (The Hill)

Throughout the tense hearing, Republicans expressed frustration that Gensler would not give them straight answers. They added that Gensler has failed to comply with congressional inquiries.

Rep. Bill Huizenga (R-Mich.) said that when he requested documents related to the SEC’s rule mandating disclosure of climate-related risks, the agency provided only publicly available information, including a letter from Huizenga and McHenry congratulating Gensler on his confirmation.

“I have it in my file already,” Huizenga told Gensler. “Honestly, what has been going on is inadequate and unacceptable.”

Huizenga and McHenry also sent a recent letter to Gensler requesting more information about the SEC’s charges against Bankman-Fried. Republicans have accused him of failing to prevent FTX’s collapse.

Gensler said Tuesday that he is committed to keeping investigative matters confidential.

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