SEC Chair Gensler Legally in the Wrong

30 June 2023

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The Blockchain Association, a prominent crypto advocacy group, has published a paper expressing its concerns over the role of Securities and Exchange Commission (SEC) Chair Gary Gensler and the legitimacy of his statements and enforcement actions on the crypto industry.

The group argues that Gensler’s involvement in digital asset matters should be reconsidered, citing a perceived bias and a failure to provide clear guidance as their primary concerns. The association, in an open letter, has put forth the claim that Gensler is overstepping his authority granted by Congress.

“While this anti-crypto campaign has intensified, the SEC has let slide one of its fundamental tasks: public rulemaking and guidance that allow investors, entrepreneurs, and the public to know whether the securities laws apply to their products or services,” wrote the association in its open letter. “Rather than clarifying whether and when a digital asset should be classified as a security, Chair Gensler’s actions have further muddied the regulatory waters, forcing lawful crypto companies to reconsider the status of their American operations.”

This lack of clarity surrounding the securities question in regard to the crypto industry, the paper details, is detrimental to investors, entrepreneurs, and the public at large. The open letter further accuses the SEC chair of harboring a clear bias against the crypto industry, suggesting that Gensler’s alleged prejudgment of all digital assets as securities — with the exception of Bitcoin — undermines the due process rights of those facing enforcement actions. As such, the association argues that Gensler’s involvement in such actions should be restricted due to this perceived bias.

Broad brushstrokes regulation

The paper dives into Gensler’s history of addressing the securities question, which critics claim ignores the unique circumstances behind each token’s creation and existence and the absence of the legal processes required to be able to draw those lines.

“As a matter of substance, Chair Gensler is wrong,” the association claims. “It is black letter law that determining whether a given instrument or transaction constitutes an “investment contract” requires a fact-intensive inquiry of the sort that Chair Gensler refuses to conduct.”

1/ SEC Chair Gary Gensler has wrongly prejudged that all digital assets are securities.

As a result, federal law requires that he recuse himself from all enforcement decisions related to digital assets.@MTCoppel and I wrote a paper explaining why 👇https://t.co/xgJ09o4SPS

— Jake Chervinsky (@jchervinsky) June 29, 2023

The paper further goes on to note that, prior to Gensler’s appointment as SEC Chair, the regulatory body acknowledged the fact that there exist circumstances in which a digital asset would not be regulated as a security. The Blockchain Association references the recent revelation that came after a court-ordered release of a slew of digital documents connected to a 2018 speech given by former SEC director William Hinman revealed that the director did not consider Ether as a security. The Hinman emails also detailed the discrepant opinions of SEC staff members on crypto regulation.

The Blockchain Association’s Chief Policy Officer, Jake Chervinsky, has stated that the digital assets industry cannot expect a fair assessment from Gensler. He has called for the Chair to recuse himself from all decisions related to digital asset enforcement matters. If Gensler does not comply, Chervinsky anticipates that the issue of Gensler’s recusal will be raised in SEC proceedings and federal district courts.

The Blockchain Association paper comes at a time when the SEC is putting increased pressure on the crypto industry, having filed civil lawsuits against the two largest cryptocurrency exchanges in existence in June.

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