Sen. Lummis, in brief supporting Coinbase, accuses SEC of undermining Congress while under Gensler's leadership

Quick Take

  • Lummis filed an amicus brief in support of Coinbase in its ongoing lawsuit with the SEC late last week.
  • The SEC’s previous approach under Gary Gensler was “un-American,” Sen. Cynthia Lummis said.
  • Lummis will lead the Senate Banking Committee’s digital assets panel in the new Congress.

Crypto supporter Republican Sen. Cynthia Lummis has accused the U.S. Securities and Exchange Commission under former Chair Gary Gensler of undermining lawmakers' efforts to regulate crypto.

Lummis filed a 29-page amicus brief in the U.S. Court of Appeals for the Second Circuit late last week tied to the SEC's case against Coinbase in which the agency accused the exchange of not lawfully registering.

"The SEC’s approach under the Biden administration was to aggressively reinterpret case law governing Howey and investment contracts, keep those interpretations secret, and then demand compliance from digital asset exchanges," Lummis said in an emailed statement to The Block.

"Such an approach is un-American," she added. "It is the job of Congress to provide a legislative framework that clearly draws the line between a security and a commodity.”

Lummis, who has been friendly toward crypto over the years, was also recently designated as chair of a newly created Senate Banking Committee panel focused on digital assets.

The question of whether certain cryptocurrencies are securities has been at the forefront of legal actions over the past few years. Under Chair Gensler, the SEC took the stance that most cryptocurrencies are securities and called on crypto platforms to register. That received pushback from some in the crypto industry who say it's impossible to register with the agency, partly because rules were made for more traditional entities that are different from the digital asset industry.

The SEC's stance on crypto is likely to change in the Trump administration following the president's move to tap crypto-friendly former regulator Paul Atkins to lead the agency. Republican SEC Commissioners have taken steps since Trump's inauguration to change the agency's direction on crypto. Acting Chair Mark Uyeda announced the creation of a crypto task force last week to "set the SEC on a sensible regulatory path."

Meanwhile, lawmakers including Lummis, have been working on bills to regulate crypto — those would need to be reintroduced in the new Congress. The main focuses so far have been on a larger crypto market structure bill and on regulating stablecoins. Lummis also worked on a bill with Sen. Kirsten Gillibrand, (D-NY.), that looks to make the SEC's role clearer and would have digital asset exchanges register with the U.S. Commodity Futures Trading Commission.

Those bills looking to regulate crypto as a whole take a much different approach than the SEC, Lummis said in the brief done in collaboration with Cahill Gordon & Reindel LLP.

"Congress—with its lawmaking power buttressed by fact finding and investigative functions—is far better equipped than the SEC to craft a regulatory framework that considers the interests of the federal government, digital asset consumers, and the industry itself," Lummis said.

Coinbase's case

The SEC sued Coinbase in 2023 for allegedly operating as an unregistered exchange, broker and clearing agency. Coinbase filed its appeal in April, claiming substantial grounds for differences of opinion. Later, the district judge said she agreed with Coinbase that there were significant differences of opinion and, in a rare move, granted the exchange's move to appeal sending the case to the Second Circuit.

The SEC is defying the Constitution's separation of powers between the legislative and executive branches in its approach against Coinbase, Lummis said.

"Senator Lummis believes that the SEC’s approach to enforcement in this case and in the digital asset industry more broadly flouts that separation of powers," according to the brief. "The SEC cannot legislate by enforcement."

The Second Circuit has a chance, with the SEC's lawsuit against Coinbase, to clarify the agency's authority, Lummis said.

"With lawsuits pending across the country that rely on the SEC’s overzealous interpretation of the securities laws, it is vital that the Second Circuit—the country’s leading securities law court—weigh in now and halt the SEC’s contravention of the separation of powers and encroachment on Congress’s lawmaker powers," Lummis said.


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© 2024 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.

About Author

Sarah is a reporter at The Block covering policy, regulation and legal happenings. Before, Sarah was a reporter with CQ Legal writing about securities regulation, which is where she first started reporting on crypto. Sarah has also written for The Bond Buyer and American Banker, among other finance-related publications. She graduated from the University of Missouri and earned a degree in print and digital journalism. Sarah is based in Washington D.C., and is an avid coffee lover. You can follow her on Twitter @ForTheWynn.

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