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SEC’s Gary Gensler to hold firm on crypto enforcement in Senate hearing

  • September 12, 2023

Seemingly unfazed by a recent slew of court setbacks, United States Securities and Exchange Commission Chair Gary Gensler remains headstrong that his agency should be the one to reign over crypto — with plans to tell lawmakers the same on Sept. 12. 

In the last two months, the securities regulator lost out to both Grayscale and Ripple — seen as a huge blow to the regulator.

In his prepared testimony for the Senate Banking Committee hearing, however, Gensler will reiterate the view that crypto assets are in fact securities and should be regulated by his agency. The Senate hearing will regard the SEC’s oversight on certain matters. 

“Given this industry’s wide-ranging noncompliance with the securities laws, it’s not surprising that we’ve seen many problems in these markets. We’ve seen this story before. It’s reminiscent of what we had in the 1920s before the federal securities laws were put in place,” reads Gensler’s prepared testimony.

Sticking to a consistent theme, Gensler asserted that almost all crypto assets meet the Howey Test — a legal test which determines whether or not an asset or transaction can be deemed a security.

“The vast majority of crypto tokens likely meet the investment contract test.”

“Given that most crypto tokens are subject to the securities laws, it follows that most crypto intermediaries have to comply with securities laws as well,” Gensler added.

On July 13, Judge Analisa Torres handed down the SEC’s first major legal defeat, after she ruled partially in favor of Ripple. Judge Torres found that the sales of XRP tokens to retail consumers did not violate federal securities laws.

While the SEC is currently pursuing an appeal of this decision, it’s expected that many other crypto companies staring down lawsuits from the regulator will reference it in their respective dismissal motions.

Related: Ripple lawyer calls SEC’s latest filing “hypocritical pivot”

On Aug. 29, the SEC suffered its second major loss against Grayscale over the prior rejection of its request to convert its over-the-counter Bitcoin Trust into a Bitcoin exchange traded fund (ETF). Without mincing words, the judge declared that the SEC’s rejection of Grayscale’s request was “arbitrary and capricious.”

These high-profile losses appear to have inspired an appeal from blockchain-based payments network LBRY, who was found guilty of violating securities laws in July.

On Sept. 7, LBRY filed a notice of appeal against the ruling, a move that has reversed its previous decision to wind down and shown that it will choose to fight the court ruling that sided with the SEC.

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