Crypto enforcement takes center stage in SEC appearance before Congress

Quick Take

  • Crypto has become the most contentious part of the SEC’s enforcement wing, judging by a recent congressional subcommittee hearing. 
  • The partisan lines as to the financial regulator’s best course of action were also on clear display. 

The Securities and Exchange Commission’s work on crypto was the central area of concern during a hearing before Congress earlier today. 

Gurbir Grewal, the director of the SEC’s division of enforcement, testified before the investor protection subcommittee of the House Financial Services Committee. 

The SEC’s enforcement work in crypto was central to the subcommittee’s questions. Chair Brad Sherman and Ranking Member Bill Huizenga both centered their remarks on the subject, as did many of their colleagues. [link to earlier story]

Full committee Chair Maxine Waters even stopped by to highlight damage to ordinary Americans’ savings “between last year’s ‘meme stock’ events, the implosion of SPACs, and this year’s catastrophic crypto crash.”

But as to most direct questions, Grewal leaned on longstanding SEC policy against commenting on much of anything. “I can’t talk about what matters we’re looking at and not looking at,” was one response from the director.

The SEC has recently expanded its crypto team in preparation for more enforcement, an event that set the backdrop for the focus on crypto. It was not lost on members of the subcommittee that, very possibly due to media dynamics, crypto had seemingly upstaged such concerns as ESG reporting and tightened insider trading, which had been at the core of the Biden administration’s agenda for the regulator. 

Congress was dissatisfied with the SEC’s enforcement work in crypto, though for inverse reasons. Democrats indicated more support for expanded enforcement against crypto firms. Sherman, a longstanding crypto critic, was at the vanguard of this, pushing for more SEC action against crypto exchanges themselves.

“If XRP is a security, then every exchange that handles XRP is a securities exchange. And the major exchanges have recognized that and delisted XRP. Which is virtually a confession that what they were doing last year was illegal,” Sherman told The Block after the hearing.

Many major US exchanges delisted the token in the month after the SEC filed an enforcement action against Ripple in December 2020. 

Jim Himes noted increasing interest in crypto enforcement as well. Noting “the list of names — Tether, Voyager, Celsius etc. etc. — where we’ve seen really really substantial either declines, bankruptcies or questions around fraud,” Himes asked Grewal: 

“What more does the SEC need in this, maybe, pause in excitement around cryptocurrency?”

In keeping with a traditional hostility towards executive agencies, Republicans of the committee were less interested in seeing more enforcement from the SEC. “They’re making it up as they go along, pretty clearly,” Huizenga told The Block of the SEC’s enforcement strategy. He further said it seemed Gensler didn’t seem to be communicating priorities to Gurbir. 

“While the commission does not intend to provide any clarity surrounding crypto assets, they intend to increase enforcement,” Huizenga summarized during the hearing. 

Tom Emmer, a member of the full committee who joined the proceedings, railed against “Gensler’s political regime at the SEC.” He highlighted letters that enforcement had sent to crypto exchanges, responses to which were, according to the congressman, less than voluntary. 

 “It seems clear to everyone except maybe those at the SEC that the SEC is not regulating in good faith,” Emmer continued. ”It can be seen most clearly in the digital asset industry.”

At the same time, it is only since the confirmation of Gary Gensler that the crypto industry began clamoring for a registration regime with the Commodity Futures Trading Commission for exchanges. 

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.