Lawmakers slam SEC for inconsistent use of term 'crypto asset securities,' demand greater clarity

Over the past week, U.S. lawmakers took jabs at the U.S. Securities and Exchange Commission and accused the agency of being inconsistent in how it labels digital assets. 

During a House Financial Services Committee hearing on Sept. 24, Rep. Patrick McHenry, R-N.C., criticized SEC Chair Gary Gensler for using different terms to describe digital assets, including crypto asset securities, crypto tokens and others. Gensler and four other SEC commissioners testified in front of Congress as part of the hearing focused on agency oversight. 

At issue is confusion in the crypto industry about how the SEC views crypto. One term often used by the SEC — "crypto asset securities" garnered particular criticism earlier this month. In a footnote on Sept. 12 in a proposed amended complaint against crypto exchange Binance, the SEC said when it refers to crypto asset securities, it's not referring to the crypto asset itself but the full set of contracts, expectations and understandings of the sales of such assets. The agency also said it "regrets any confusion."

During the Sept. 24 hearing. Gensler said that it is less about how something is named and "more about the economics," pointing to the Howey Test, a 1946 U.S. Supreme Court case frequently cited by the SEC, to determine if an asset qualifies as an investment contract and, therefore, a security.

McHenry, chair of the House Financial Services Committee, pushed back.

"But there are different terms, and words have meaning," McHenry said. "The fact that you've used multiple different words to explain what seems to be the same phenomenon, I think really raises questions about clarity."

Republican Commissioner Hester Peirce, who was also testifying on Sept. 24, said clarity is needed.

"I think what's happening here is that we're trying to be ambiguous because the legal precision carries with it real implications," Peirce, known for championing crypto, told lawmakers.

'Out of thin air'

Crypto-friendly Democrat Rep. Ritchie Torres also took a jab at the SEC in a hearing on Sept. 18, accusing the agency of making up terms for digital assets. 

During a House Financial Services digital asset-focused subcommittee hearing titled "Dazed and Confused: Breaking Down the SEC’s Politicized Approach to Digital Assets, Torres pointed to the SEC's use of "digital asset securities."

Rep. Torres asked Dan Gallagher, chief legal, compliance, and corporate affairs officer at Robinhood Markets, Inc., who was testifying at the hearing, about the footnote in the Binance complaint and whether the term "appears anywhere in any statute enacted by Congress" or in "any rule promulgated by the SEC" or in the Federal Register — where rules are published. 

Gallagher said no. 

"If it appears nowhere, neither in rule nor statute, did the SEC invent the term out of thin air?" Torres said.