McHenry clashes with SEC’s Gensler over crypto crackdown

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Gensler has long argued that much of the $1 trillion lightly regulated market violates U.S. securities rules because many products are made up of unregistered securities.

Gensler, an ally of top progressives like Senate Banking Chairman Sherrod Brown (D-Ohio) and Sen. Elizabeth Warren (D-Mass.), has been on a collision course with McHenry since the GOP took control of the House in January. Veteran regulators’ turbocharged regulatory agenda includes planned overhauls of the private equity industry and stock trading, as well as a sweeping proposal on climate change that Republicans beat with allegations of government overreach.

But much of Tuesday’s fireworks focused on crypto. McHenry and other Republicans like Representatives French Hill of Arkansas and Bill Huizenga of Michigan attacked Gensler for his approach to regulation. They said it focused too much on enforcement and not enough on clarity for the industry. They also lambasted the SEC chairman for blocking their efforts to investigate his response to the FTX failure.

In a contentious exchange, McHenry challenged Gensler to explain whether Ether was the second-largest crypto token after Bitcoin, while hinting at a potential turf war between the SEC and another regulator, the Commodity Futures Trading Commission. CFTC Chairman Rostin Behnam, whose agency oversees derivatives, said Ether falls under CFTC jurisdiction.

Do you think it is useful for the market for an object to be considered by the commodity regulators as a commodity and by the securities regulator as a security? Do you think this ensures the safety and strength of the products? McHenry asked Gensler, who ran the CFTC during the Obama administration. I think ‘no’ should be a very simple answer for you here.

But Gensler declined, citing longstanding precedent for SEC officials not to comment on the facts and circumstances of specific cases. Instead, he offered a high level answer explaining the SEC test to determine if an asset is a security.

The SEC chairman called on exchanges, brokers and issuers to abide by the same rules that Wall Street follows.

It’s not a matter of lack of clarity, Gensler said. This is an area that is mostly built around non-compliance.

Democrats, led by Ranking Member Maxine Waters (D-California), have championed Gensler’s digital asset strategy. Waters argued that his approach marked a marked difference from that of previous SEC officials.

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