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SEC Chair Gary Gensler grilled over crypto regulation, handling of DEBT Box case in heated congressional hearing

▪️Republican Majority Whip Tom Emmer got into a heated exchange with SEC Chair Gary Gensler during Tuesday’s hearing.

▪️Some lawmakers have criticized the SEC’s approach to regulating crypto over the years and say rules are not clear for the industry. Others say the SEC is doing its job by protecting investors.

U.S. Securities and Exchange Commission Chair Gary Gensler took the heat from both sides of the aisle during a congressional hearing over his handling of regulating the crypto industry.

In an intense exchange during a House Financial Services Committee hearing on Tuesday, where all five SEC commissioners were testifying, Republican Majority Whip Tom Emmer asked the SEC chair about its case involving crypto startup DEBT Box.

A federal judge in Utah criticized the SEC's handling of the case and said the agency acted in bad faith. The agency was ultimately ordered in March to pay sanctions, including attorney's fees and costs. The same judge also criticized what he characterized as the SEC's misleading statements, with the agency admitting it had fallen short of expectations.

"Does the fact that we're talking about this today even slightly embarrass you?" the Minnesota Republican asked.

"The matters in that case were not well handled," Gensler responded.

Some lawmakers have criticized the SEC's approach to regulating crypto over the years and say rules are not clear for the industry. Others, including top Democrat Maxine Waters say the SEC is doing its job by protecting investors and "ensuring our capital markets remain the envy of the world."

Tuesday's hearing also comes as elections are just around the corner where crypto has become a hotly contested issue. 

Crypto firms have so far spent $119 million in 2024, with almost all of the funds going into super political action committees, specifically the Fairshake PAC, according to a report last month from consumer advocacy group Public Citizen.

Emmer, who has been critical of the SEC chair, also asked Gensler about Vice President Kamala Harris' comments over the weekend about crypto. Harris said she would "encourage innovative technologies like AI and digital assets while protecting consumers and investors. We will create a safe business environment with consistent and transparent rules of the road," according to Bloomberg.

"Is this your approach too sir, or do you think she's rebuking you because she doesn't think you've done a good enough job establishing these clear rules over the last three years of her administration?" Emmer asked.

Gensler said laws are in place, but that Congress can change them.

Take me out to the ball game
Democrat Ritchie Torres also peppered Gensler with questions about how the agency defines securities, using a New York Yankees ticket as an example. The crypto-friendly lawmaker asked Gensler if selling a Yankees ticket to him would be a security and later pointed out that the ticket would give him "access to a Yankees game."

Torres' line of questioning comes after the SEC has charged multiple entities with unregistered securities offerings, including Stoner Cats 2 LLC for conducting an unregistered offering of NFTs that brought in $8 million from investors.

"From the standpoint of federal securities laws, is there a legal difference between buying a Yankee ticket that offers you the experience of a Yankee game and buying an NFT that offers you the experience of an animated web series?" Torres asked.

Gensler said it's about how something is offered and sold and if people are "looking to a common enterprise anticipating profits," citing the Howey Test. The test is based on 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.

"The expectation or promise that an object could appreciate in value or that an object could be sold at a profit in the secondary market, that expectation or profit could be retrospectively attributed to just about any collectible or any consumer good or any piece of art or any piece of music," Torres said.

Gensler said it's about how something is offered and sold and if people are "looking to a common enterprise anticipating profits," citing the Howey Test. The test is based on 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.

"The expectation or promise that an object could appreciate in value or that an object could be sold at a profit in the secondary market, that expectation or profit could be retrospectively attributed to just about any collectible or any consumer good or any piece of art or any piece of music," Torres said.

 @ Newshounds News™

Source:  The Block

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BNY nears crypto custody for ETFs after SEC softens SAB 121 stance

Bank of New York Mellon will not be held to SEC accounting practices for client crypto custody after a review.

The Bank of New York Mellon (BNY) is moving toward providing custody services for its exchange-traded fund (ETF) clients’ Bitcoin and Ether after the United States Securities and Exchange Commission (SEC) gave it a pass on observing controversial crypto accounting guidelines.

The SEC’s Office of the Chief Accountant conducted a review earlier this year and concluded that the bank did not need to adhere to the SEC’s Staff Accounting Bulletin (SAB) 121, Bloomberg reported.

SAB 121 requires companies safeguarding client crypto assets to list them as liabilities in their accounting. It has been a thorn in the side of the US crypto industry since its introduction in April 2022.

The SEC loosens its grip
Other financial institutions may receive the same break, the SEC hinted. A spokesman told Bloomberg:

“Certain broker dealers and custody banks have sufficiently demonstrated to SEC staff that their fact patterns are different from those described in SAB 121.”

“As long as their customers receive the same protection for the safeguarding of crypto assets as they do in custody arrangements, their balance sheet treatment is also the same as custody arrangements,” the agency continued.

BNY would need the authorization of other regulators in addition to the SEC before it could begin offering custody services. It told Bloomberg:

“BNY has engaged, and will continue to engage, its banking regulators to offer custody services to crypto ETP clients at scale.” Source: Financial Services GOP

 SAB 121 is a source of endless controversy.  

The inconvenient SAB 121 caught the world unprepared. Coinbase’s Q1 2022 financial report led to false speculation that the company was unsound after it incorporated the new accounting.

In June 2022, politicians joined the fray for the first of many times by writing to SEC Chair Gary Gensler complaining of “regulation disguised as staff guidance.”

The Government Accountability Office examined the guidance at the urging of pro-crypto Senator Cynthia. In October 2023, it determined that SAB 121 was subject to the Congressional Review Act, which requires agency rules to be submitted to Congress with a procedure for disapproval.

A coalition of the Bank Policy Institute, American Bankers Association, Financial Services Forum and Securities Industry and Financial Markets Association sent a letter to Gensler in February asking that traditional assets recorded on blockchain be exempted from the requirements of SAB 121.

Despite the pressure, the SEC held tight to the guidance, and legislation was passed to overturn the guidance in May. US President Joe Biden vetoed the legislation the following month.

@ Newshounds News™

Source:  CoinTelegraph

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Gensler grilled as most ‘destructive’ SEC chair during congressional hearing

SEC Chair Gary Gensler faced criticism from lawmakers and agency members during a House Financial Services Committee hearing over his handling of crypto regulation in the United States.

United States Congressman Tom Emmer slammed SEC Chair Gary Gensler during a congressional hearing, calling him the most “destructive” and “lawless” Chair in the regulator’s 90-year history.

“You’ve made up the term crypto asset security. This term is nowhere to be found in statute, you made it up [and] you never provided any interpretive guidance on how crypto asset security might be defined within the walls of your SEC,” Emmer told Gensler before a House Financial Services Committee hearing on Sept. 24.

Emmer said the term had served as the entire basis for Gensler’s “enforcement crusade” against the crypto industry for the last three years. This was up until last week when SEC lawyers retracted the term in a court footnote.

“Your inconsistencies on this issue have set this country back. We could not have had a more historically destructive or lawless chairman of the SEC.”

Emmer also grilled Gensler over his agencies’ handling of the Debt Box case — a case where the SEC sued a crypto startup for an alleged $50 million fraud scheme. The case against Debt Box was dismissed on May 28, and the SEC was ordered to pay $1.8 million in fees.

Emmer said the SEC attorneys crafted a series of lies in the Debt Box case to “effectuate the commands” of Gensler’s “anti-crypto rhetoric” and regulation-by-enforcement agenda.

“The matters in that case were not well handled,” Gensler said in response to Emmer’s questioning.

SEC ‘should have admitted long ago’ that crypto tokens aren’t securities: Peirce

Gensler also faced heat from within his own ranks, with SEC Commissioner Hester Peirce saying the SEC’s move to retract the term crypto asset security in court last week should have happened “a long time ago.”

“[By] tucking into a footnote, we admit that now actually the token itself is not a security. That's something that we should have admitted long ago,” the pro-crypto SEC commissioner explained.

“We’ve fallen on our duty as a regulator not to be precise,” Peirce said.

When asked whether crypto tokens need a statutory definition to ascertain how they apply to securities laws, Peirce responded: “It’s always helpful to have Congress weigh in, but there certainly are some guidelines we could provide in this area that we have chosen not to provide.”

“But a statutory definition would help well I always welcome the input of Congress.”

Gensler confirms SAB 121 rule will stay in place

Despite calls from 42 US politicians to rescind the SEC’s Staff Accounting Bulletin No. 121 rule, Gensler said it will remain in effect.

“No, it’s a good accounting bulletin,” Gensler said in response to a question from House Rep. Wiley Nickel about whether the SEC would rescind the rule.

The SAB 121 rule mandates SEC-reporting entities that custody crypto to record those holdings as liabilities on their balance sheets. A SAB 121 repeal bill received bipartisan support in Congress before being vetoed by President Joe Biden in June.

Gensler claims it will help public companies understand the risks associated with holding crypto, pointing to FTX, Terraform Labs and other crypto bankruptcies.

Nickel didn’t bite, claiming that SAB 121 actually makes the digital asset ecosystem “less safe.”

Nickel recently claimed that SAB 121 would prevent US banks from custodying crypto exchange-traded products at scale, creating a “concentration risk” by handing more control over to non-bank entities.

With the rule now in place, Nickel slammed the SEC’s Office of the Chief Accountant for recently exempting Bank of New York Mellon from the balance sheet reporting requirement — arguing that it will lead to “different rules for different folks.”

But Gensler disagreed: “It’s actually the same rules for different folks.”

@ Newshounds News™

Source:  CoinTelegraph

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AHEAD OF TODAY’S CONGRESSIONAL HEARING ON SEC OVERSIGHT, REPUBLICANS URGED GENSLER TO REPEAL  |  Youtube

@ Newshounds News™

Source: Seeds of Wisdom Team Currency Facts 

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