Gensler Faces Congressional Scrutiny on Crypto Regulation

U.S. Securities and Exchange Commission Chair Gary Gensler faced criticism from both Democrats and Republicans during a congressional hearing regarding his regulation of the crypto industry.

In a heated exchange at the House Financial Services Committee hearing on Tuesday, SEC Commissioner Gensler was questioned by Republican Majority Whip Tom Emmer about the agency’s handling of a case involving crypto startup DEBT Box. A federal judge in Utah had previously criticized the SEC for its conduct in the case, stating the agency acted in bad faith, leading to ordered sanctions, including attorneys’ fees. The judge also claimed the SEC made misleading statements and acknowledged it had fallen short of expectations.

Emmer pressed Gensler, asking if he felt any embarrassment over the situation. Gensler admitted, “The matters in that case were not well handled.”

Lawmakers have long criticized the SEC for its unclear rules in regulating crypto, while others, like Democrat Maxine Waters, argue that the SEC is effectively protecting investors and maintaining the integrity of capital markets.

With elections approaching, crypto regulation is a contentious topic. Crypto firms have reportedly spent $119 million in 2024, primarily through PACs like Fairshake.

Additionally, Emmer questioned Gensler about Vice President Kamala Harris’ recent comments regarding innovative technologies, asking if her statement implied dissatisfaction with Gensler’s approach to creating clear regulatory rules.

In response, Gensler stated laws are in place, but changes can be made by Congress.

Questioning the Definition of Securities

Democrat Ritchie Torres further probed Gensler about the SEC’s definition of securities, likening it to a New York Yankees ticket. Torres questioned whether a ticket, which grants access to a game, qualifies as a security, drawing parallels to NFTs the SEC has charged for unregistered offerings.

Gensler explained that it depends on how something is offered and sold, referencing the Howey Test—a Supreme Court precedent to determine if an asset is an investment contract. Torres argued that expectations of value appreciation apply broadly, potentially encompassing collectibles and consumer goods.