• U.S. lawmakers, led by House Majority Whip Tom Emmer, criticized SEC Chair Gary Gensler’s crypto regulation approach accusing him of overstepping authority.
• Lawmakers expressed frustration over Gensler’s vague responses regarding digital assets and questioned the SEC’s unequal application of regulations.

U.S. lawmakers recently grilled Securities and Exchange Commission (SEC) Chair Gary Gensler, criticizing his approach to crypto regulation. The lawmakers spotlighted the SEC’s heavy-handed, inconsistent enforcement agenda. House Majority Whip Tom Emmer led the charge, accusing the SEC Chair of overstepping his authority.

“You’ve invented the term ‘crypto asset security,'” Emmer said during the Financial Services Committee hearing. He pointed out that Gensler’s use of the term had no legal foundation. Moreover, Emmer argued that the SEC Chair had launched a regulatory campaign against cryptocurrencies based on this fabricated term. However, the SEC withdrew the campaign at a later stage. 

“We could not have had a more historically destructive or lawless chairman of the SEC,” Emmer added. Emmer also criticized Gensler’s handling of specific cases, notably the SEC’s lawsuit against Debt Box, a crypto startup accused of fraud.

The case, which centered on allegations of a $50 million scam, was dismissed. In addition, the SEC was ordered to pay $1.8 million in legal fees. Emmer accused SEC attorneys of fabricating evidence to align with Gensler’s anti-crypto stance. Gensler acknowledged the mishap and stated, “The matters, in that case, were not well handled.” Earlier this month, the SEC also faced an investigation into hiring practices raising concerns of potential bias, reported CNF. 

Gary Gensler Avoids Token vs. Securities Discussion

Financial Services Committee Chairman Patrick McHenry accused the SEC of becoming a “rogue” agency under Gensler’s leadership. He noted the lack of clarity in the terms the SEC uses when referring to digital assets. He pointed out that the regulator had used terms like “crypto tokens,” “crypto securities,” and “digital asset securities” interchangeably, creating confusion. 

In response, Gensler downplayed the importance of specific terminology. He stated that what mattered most was the “economic reality” of the asset. He cited the Howey test, a legal precedent for determining whether a transaction qualifies as an investment contract under U.S. securities law. Furthermore, the SEC chain also issued a stark warning to crypto exchanges on complaint matters, reported CNF. 

“It really goes down to a Supreme Court test, which is the law of the land, called the Howey test,” Gensler said. However, McHenry expressed frustration with Gensler’s vague answers and lack of clear distinctions between different types of digital assets.

Frustration Over SAB 121

In addition, lawmakers have also taken issue with SEC regulations affecting crypto custodians. Representative Wiley Nickel questioned whether the SEC would reconsider its Staff Accounting Bulletin No. 121 (SAB 121). Nickel argued that this bulletin could make the digital asset ecosystem “less safe” by preventing U.S. banks from managing crypto ETFs.

Nickel noted that it will concentrate risk in non-bank entities, making the system more vulnerable. Gensler defended the rule, stating, “No, it’s a good accounting bulletin.”

Thereafter, Nickel pointed to a recent exemption granted to Bank of New York Mellon from reporting requirements, per the CNF report. “Different rules for different folks,” he said. However, Gensler denied this, asserting that they have applied rules equally.

Commissioner Mark Uyeda also weighed in on the state of the SEC under Gensler’s leadership. Rep. Mike Lawler asked whether the SEC remained the “gold standard” among regulators. To this, Uyeda responded, “Our condition today in rule-making… is below the average.”