U.S Lawmakers Question Gary Gensler and SEC Crypto Tactics

Key Insights:

• U.S lawmakers target Gary Gensler and the SEC for burdening private companies and citizens.
• There are concerns that the SEC’s stance on cryptos could impact innovation.
• The timing coincides with an SEC motion in the SEC v Ripple case that could prove pivotal.

It has been a busy start to the year for governments and regulators. Increased illicit activity, a surge in NFT marketplace trading, and interest in the Metaverse have led to a rise in government and regulatory scrutiny.

While U.S regulators have ramped up investigations into cryptos, others have considered the need to embrace innovation within the digital asset space.

Members of Congress Question Crypto Scrutiny

Republican congressman Tom Emmer took to Twitter overnight, sharing a letter sent to SEC Chair Gary Gensler.

Unlike most positions in Congress, the letter was bipartisan, with members from both sides of the aisle co-signing the letter. All of the signatures are members of the Congressional Blockchain Caucus.

This is why I sent a bipartisan letter today to SEC Chair @GaryGensler with @RepDarrenSoto, @WarrenDavidson, @RepAuchincloss, @RepDonaldsPress, @RepJoshG, @RepTedBudd, and @RepRitchie regarding the SEC’s crypto information seeking process. pic.twitter.com/8HcTgZA0XL

— Tom Emmer (@RepTomEmmer) March 16, 2022

The letter raises concerns over Gary Gensler and the SEC’s use of the,

“Enforcement Division’s investigative functions to gather information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commissions’ standards for initiating investigations.”

The letter goes on further saying,

“In seeking information from the American public, federal agencies must be good stewards of the public’s time, and not overwhelm them with unnecessary or duplicative requests for information.:”

The above is in reference to the Paperwork Reduction Act, which limits the burden federal agencies can place on citizens and private businesses.

Within the letter, lawmakers posed 13 questions to obtain a detailed view of the SEC’s works and the extent of SEC requests made to crypto-related companies.

Lawmakers, lawyers, and the crypto industry will be looking out for Gary Gensler and the SEC to respond to the letter.

The timing coincides with a pickup in judicial activity, with all eyes currently on the SEC v Ripple Lab case.

SEC Battle Against Ripple Lab Takes More Twists and Turns

The SEC v Ripple (XRP) case has been ongoing since December 2020. This year, several motions have gone Ripple’s way.

Last Friday, Judge Analisa Torres ruled against an SEC motion to deny Ripple Lab using a fair notice defense. The judge also dismissed a motion to dismiss the SEC case against Ripple Lab executives Brad Garlinghouse and Chris Larsen.

As a result of the denied motion to drop the case against them and the fair motion defense ruling, the SEC is now looking for the judge to reconsider its ruling on releasing internal email communications from 2018.

The internal communications related to the famous William Hinam speech, where, talking about ETH, he said,

“Ethereum is not a security.”

The SEC claims the communications are not relevant to the individual defendants’ scienter.

For the SEC and crypto market, the outcome of this case is material. The SEC v Ripple Lab case will set precedence if it goes to trial. An unfavorable outcome for the SEC will also materially change the lay of the land.

Other crypto-related firms have chosen to settle rather than face lengthy battles. Last month, BlockFi paid a $100m penalty in settlement with the SEC.