Issues raised during the hearing include accusations the regulators have taken an inconsistent, hypocritical approach when deciding what entities to pursue with enforcement action. Ahead of the hearing, majority committee members sent a letter to Gensler enumerating these concerns.
In his opening remarks to the Tuesday, April 18, hearing, House Financial Services Committee Chairman Rep. Patrick McHenry, a Republican from North Carolina, pointed to what he said is a “reckless rulemaking agenda, and disregard for the Commission’s capital formation mandate.”
“Under your leadership, the SEC has brought nearly 50 separate enforcement actions against digital asset firms. And now your agency is requesting an additional $78 million to expand your enforcement agenda,” McHenry said. “At the same time, you have refused to provide clarity on whether digital assets offered as part of an investment contract are subject to securities laws. And, more importantly, how these firms should comply with those laws.”
Recently, the SEC charged digital asset trading operation Bittrex, and its former CEO, William Shihara, for improperly operating an exchange. Per the announcement, the platform was also accused of failing to register as a national securities exchange. Also included in the complaint are allegations the company instructed issuer-applicants to delete statements like those pertaining to profit expectations and price projections, which are generally associated with investing, so as not to alarm regulators.
"Ranking Member @RepMaxineWaters opening statement at full Committee @SECGov hearing: '... I can’t believe that this Committee is rushing to take off more guardrails when we should be adding them.' https://bit.ly/41vp9pG"
McHenry and his counterparts, though, have taken issue with the SEC’s enforcement approach. “You’re punishing digital asset firms for allegedly not adhering to the law when they don’t know it will apply to them. That’s nonsensical,” added McHenry in his remarks.
Gensler defended the agency during his testimony, and he touted its work protecting consumers from would-be scammers and other bad actors in the crypto space. “Congress gave the Commission a mandate to protect investors, regardless of the labels or technology used. Nothing about the crypto markets is incompatible with the securities laws,” Gensler said. “As I’ve said numerous times, the vast majority of crypto tokens are securities.”
"Better Markets Legal Director Steve Hall explains that the 'SEC because is making significant progress in its mission to protect investors & maintain fair, orderly, and efficient markets.' You can learn more about the @SECGov’s work here: https://bettermarkets.org/newsroom/as-house-financial-services-committee-evaluates-sec-performance-it-should-consider-lack-of-agency-resources-and-protecting-retail-investors/"
Gensler said since the SEC treats most digital tokens as securities, intermediaries dealing in those tokens should be required to register with his agency. “The investing public generally is buying crypto tokens because those investors are anticipating a profit and hoping for a better future. These thousands of tokens often are supported by websites and social media accounts, and generally there are entrepreneurs backing them. The public generally is counting on the efforts of other humans behind these tokens to generate profits on their investment,” he said.
Despite SEC assurances, congressional Republicans still have concerns. As such, their letter takes aim at the SEC’s designated registration process in general, calling it “nonexistent” and grossly misrepresented by Gensler.
“To date, the SEC has forced digital asset market participants into regulatory frameworks that are neither compatible with the underlying technology nor applicable because the firms’ activities do not involve an offering of securities,” reads the letter. “Both approaches hamper the digital asset ecosystem’s ability to realize the unique benefits the new technology offers, which harms consumers, investors, and the economy as a whole.
Specifically, the letter alleges the existing national securities exchange (NSE) framework is inadequate and says calls for entities to register under its banner are inappropriate. “ … you have failed to provide a path that allows digital asset trading platforms to register. As you know, many digital assets are developed for the purpose of being used within a developing system, are capable of being used in non-securities transactions, and are meant to be consumed and used in the protocol for which it was designed. Existing regulations under the NSE framework do not contemplate these features.”
Separately, new digital asset legislation from Republicans on the committee dealing with stablecoin issuers is being circulated for support among members. Read the bill here.